Title: A simple macroeconomic model of a currency union with endogenous money and saving-investment imbalances

Authors: Dirk H. Ehnts

Addresses: Latin-American Institute, Free University Berlin, Rüdesheimer Str. 54-56, 14197 Berlin, Germany

Abstract: The great financial crisis has triggered new economic thinking about the functioning of an economy, and in the European case, of a currency union. Explanations of the macroeconomic relations inside a currency union are therefore in demand. It is now widely understood that sectoral debt and the current account should be part of a model. Traditional textbook models, like the IS-LM-BP or the IS-MR-PC models, respectively, are found lacking on the monetary or the real side, or both. This paper develops a model in order to fill this gap by constructing a simple model featuring endogenous money and saving-investment imbalances.

Keywords: endogenous money; saving-investment imbalances; European Monetary Union; EMU; euro zone; macroeconomic imbalances; sectoral debt; current account; currency union; Keynesian cross; savings; investment; macroeconomic models; modelling; macroeconomics.

DOI: 10.1504/IJPEE.2014.066686

International Journal of Pluralism and Economics Education, 2014 Vol.5 No.3, pp.279 - 297

Received: 29 Nov 2013
Accepted: 23 Nov 2014

Published online: 14 Jan 2015 *

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