Endogenous money, the production process, and inflation analysis

Abstract

This paper demonstrates that a good deal of confusion is involved in the definition of endogenous money. For some people endogeneity is defined relative to the elasticity of the money supply function, namely, any money supply function which is not perfectly inelastic is considered endogenous. Alternatively, endogenous can be defined as a shift in the money supply function independent of its elasticity. Using the latter definition of endogeneity, the paper distinguishes between changes in the supply of money (endogenous shifts of the supply function) which is due to a real bills or increase in production flow effect, from that due to an inflation bills, i.e., an increase in the costs of production effect.

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