Financial innovation, globalization and instability: Three essays on the political economy of U.S. monetary policy.

摘要

In my dissertation the significance for U.S. monetary policy and for anti-inflationary policy in general of the shift in the 1960s from an exogenous money supply to an endogenous money supply is examined. With special attention to the nature and role of financial crises and financial innovations, the U.S. money supply process is analysed in terms of the determinants of U.S. monetary policy. It is shown that the endogeneity of money in the United States can be properly understood only in terms of these determinants.;The ways in which financial crises and innovations make the money supply endogenous are examined in order to make explicit the assumptions concerning the determinants of U.S. monetary policy that are the basis for the widespread conclusion that an endogenous money supply undermines the ability of the Federal Reserve to exercise monetary restraint. In contrast to this widespread conclusion it is argued that, if central banks are understood as cartel organizers for the large commercial banks, then an endogenous money supply facilitates restrictive monetary policies by allowing powerful members of the bank cartel to minimize the costs to themselves of such policies.;The usefulness of understanding the endogeneity of money in terms of the determinants of U.S. monetary policy is then shown by applying the cartel theory of central bank behavior to the 1966 financial crisis and the financial innovation of banks borrowing Eurodollars in order to finance domestic lending operations. It is shown that the 1966 financial crisis was caused by a breakdown in the bank cartel while the financial innovation of U.S. bank Eurodollar borrowings was the result of an effort to put the cartel back together.