This paper models a "credit economy" in which the only exchange media are bank liabilities created as a by-product of the demand for finance by firms. Monetary policy involves the "pegging" of interest rates and, since there is no "natural rate" of interest in the model, is non-neutral. If the authorities peg the real rate, a Phillips curve type relationship emerges. Lower settings of this rate lead to both higher output and inflation. This restores something of the Wicksellian notion of the "cumulative process," but in a context of variable equilibrium output. If nominal rates are pegged, then lower settings will lead to both lower inflation (contrary to Wick-sellian tradition) and output.
