Jérôme de Boyer des Roches wrote:
>
> Concerning bank liquidity in “recent” Keynesian macroeconomics, it is 
> worth to refer to Bernanke & Blinder (1988). Taking into account bank 
> credit and reserve coefficient leads to substitute a Commodity-Credit 
> (CC) curve for the “demand for and supply of goods” (IS) curve. The CC 
> curve gives the equilibrium conditions – income, interest rate and 
> credit rate - at the same times on the goods market (IS) and credit 
> market (ll, if we write l for “loans”). The slope of the CC curve 
> depends on the credit rate elasticities of demand and supply of bank 
> loans, but also on the income elasticity of the demand for loans. 
> Thus, when central bank creates liquidity, LM and CC shift.
>
Too bad de Boyer appears stuck on this older, 1988, view of Alan Blinder 
(and Ben Bernanke).  By 1997 Blinder was of a different opinion 
regarding the usefulness of the IS-LM model that de Boyer appears unable 
to free his mind from.  Blinder writes:

“there is by now a strong professional consensus that the once-reliable 
LM curve fell prey years ago to ferocious instabilities in both money 
demand and money supply … Hence the LM curve no longer plays any role in 
serious policy analysis” and “key aspects of the IS curve are still in 
dispute” (AER1997, 240, 241). ( David Romer, /Journal of Economic 
Perspectives, /2000, dispenses with the LM curve altogether.)

De Boyer goes on with:

> Now, if the propensity to save increases, CC shifts to the left. Again 
> the multiplier is at work. But now the decrease of income has a double 
> effect on the credit market which makes the credit rate diminish, 
> therefore promotes investment: 1) it realizes cash so that the supply 
> of credit increases; 2) it diminishes the demand for credit. Like in 
> the IS-LM model, thanks to investment increase, saving (i.e. the 
> supply of investment goods) increases. This lasts until S=I. However, 
> if we accept that income is not given, at the end income (not saving) 
> has diminished.
>
This after my previous attempts to explain the meaninglessness of the 
Keynesian multiplier argument and the fact that savings are the purchase 
of financial assets and therefore increased savings do not decrease 
aggregate demand nor decrease total income. It is simply incredible to 
me that de Boyer does not recognize the contradictions in his argument: 
increased savings decrease total income, decrease interest rates, and 
therefore increase investment spending, and then cash increases, which 
diminishes the demand for credit!

I now accept that we are talking past each other and there is no point 
in carrying on with this.

James Ahiakpor

-- 
James C.W. Ahiakpor, Ph.D.
Professor
Department of Economics
California State University, East Bay
Hayward, CA 94542

(510) 885-3137 Work
(510) 885-4796 Fax (Not Private)