Money and Monetary Policy in a Kaldor-Pasinetti-Sraffa-Keynes Framework

This paper investigates the role of money and the transmission of monetary policy in a model characterised by interest-insensitive expenditures and unemployment equilibria. It first outlines the structure of what is called a Kaldor-Pasinetti-Sraffa-Keynes (KPSK) model where output is determined by the principle of effective demand, expenditures are determined by income distribution, and prices are determined along Sraffian lines. It secondly explores the role of money in this kind of model, assuming first an exogenous money supply and then an endogenous one, and compares the difference between these two sets of monetary arrangements for the model’s key macroeconomic variables: output, employment and prices. This exploration provides evidence that endogenous money is a necessary condition for the attainment of an unemployment equilibrium. The paper thirdly examines the operation of a Taylor rule in the conduct of monetary policy within a KPSK model, comparing its impact with that in a neoclassical macro model where such rules generate full employment. The paper concludes with some observations about the relationship between the concepts of money supply endogeneity, the interest-insensitivity of expenditures and money non-neutrality in models of the KPSK variety.