In New Keynesian as well as in Post Keynesian macroeconomic models, money supply is assumed to be endogenous. The reasons for the endogeneity and the role of the financial sector in the supply process, however, are seen very different. In this paper we explicitly derive the behaviour of the...

When banks choose similar investment strategies, the financial system becomes vulnerable to common shocks. Banks decide about their investment strategy ex-ante based on a private belief about the state of the world and a social belief formed from observing the actions of peers. When the social...