An Alternative Framework of Central Banking from a Post Keynesian Perspective

This thesis investigates central banking theory and policy, by critically analysing, testing the existence mainstream approach and then provide an alternative framework for Central banking theory and policy from a post-Keynesian’s perspective. My main contribution is to deliver a comprehensive understanding of the nature, roles, functions, and objectives of a modern central bank, to achieve economic stability and promote the well-being of our society.
Besides some theoretical chapters that provide a more in-depth understanding in central banking theories and policies, this thesis could mainly be divided into three main parts: the first part, investigating the role of central banking in the financialisation era, by discussing and analysing the impact of monetary policy on securitisation. Our finding indicates a weak role of the central bank as a bankers’ bank, as banks’ behaviour in term of increasing liquidity via securitisation is reducing the efficacy of central bank’s intended policy. The second part investigates the crucial interrelationship between central banks and governments. I critically discuss the competing theories of monetary-fiscal policy relationship, and I apply a Stock-Flow Consistent modelling to provide an alternative framework in understanding the importance of monetary-fiscal policy interrelation within a post-Keynesian approach in order to achieve a sustainable financial and economic stability. The third part goes beyond the central bank role towards banks and the government, to critically shed the light and assess the role of a central bank as a social regulator. Investigating the relationship between central banking and inequality, and the role of policy rate of interest as a distributive macroeconomic variable within different economic paradigms, then applying a SFC modelling to provide an alternative fair rate of interest rule to reduce inequality and achieve sustainable economic growth.
Although other researchers have studied these issues, this study has the distinctive feature of providing a broader theoretical and empirical guideline to central banking. Furthermore, this study will be the first one to develop a holistic and comprehensive alternative framework, guideline and dynamics of central banking in a macroeconomic model in the advanced world economy.