Accommodationism, Structuralism, and Superstructuralism

Abstract

Post Keynesians object to Milton Friedman's notion of a "helicopter drop " of money. I think their objections are appropriate. Basil Moore asserts the central bank just holds the line on interest rates, and accommodates everything. How does it do this? What are the asset transactions (T-account entries) between the central bank and the private sector that accomplish this injection of reserves? Moore never specifies this, which leads one to think that there may be a helicopter in the background. If the central bank buys assets from the private banks, then balance sheets will be transformed. Private banks will have to choose which assets to sell, and when they sell them they will have an incentive to alter their liability positions which are cross-linked to asset holdings. This is the essence of asset and liability management. Such balance sheet transformations will change risk positions, and this will likely lead to changes in the structure of interest rates, both by asset and liability type and by term to maturity. The above argument maintains that private sector interest rates will change even if the central bank holds the line on the federal funds rate. This is what I call "super-structuralism". In practice, the central bank monitors the financial sector and real economic activity, and responds according to its policy reaction function. This is another source of interest rate change,

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