Endogeneity of money and monetary dependence in Mexico: theory and empirical relationships

Abstract

This article presents the development of the post-Keynesian theory of endogenous money, which assumes that central banks do not have complete control of monetary aggregates since the amount of money in the economy is determined endogenously by the demand for credit to finance productive and consumer activity. Furthermore, we analyze the deficiencies of the orthodox monetary approach and the economic-financial problems that come with trying to control credit and inflation with a single instrument, the short-term reference interest rate. Finally, through the application of causality tests in the Granger sense, we test the causal relationship between credit, monetary aggregates, inflation, compensation of employees, GDP, and the monetary base