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Cambridge Journal of Economics Advance Access published online on December 7, 2007
Cambridge Journal of Economics, doi:10.1093/cje/bem035
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© The Author 2007. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Banking strategy and credit expansion: a post-Keynesian approach

Antonio J. Alves, Jr, Gary A. Dymski and Luiz-Fernando de Paula*

* Universidade Federal Rural do Rio de Janeiro—UFRRJ (antonioj{at}ufrrj.br); University of California Center Sacramento (gary.dymski{at}ucop.edu); Universidade do Estado do Rio de Janeiro—FCE/UERJ

Address for correspondence: Prof Luiz-Fernando de Paula, Universidade do Estado do Rio de Janeiro, Faculdade de Ciências Econômicas, Rua São Francisco Xavier, 524 sala 8039F, 20550–13, Rio de Janeiro, Brazil; email: luizfpaula{at}terra.com.br

This paper aims to clarify the relationship between individual banks and banking industry behaviour in credit expansion. The authors argue that the balance sheet structure of an individual bank is only partially determined by its management's decision about how aggressively to expand credit; it is also determined by the balance sheet positions of other banks. This relationship is shown explicitly by a simple disaggregation of the variables that enter into the economy-wide money multiplier. The approach taken here revives the multi-bank approach to banking analysis pioneered by Wallace and Karmel in the 1960s, which is particularly well-suited to integrating micro and macro levels in Keynesian banking analysis.

Key Words: Banking behaviour • Banking firms • Business cycle • Credit • Post-Keynesian theory

JEL classifications: E12, E32, E44, G21

Manuscript received March 7, 2005; final version received July 8, 2007.


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