Transcending the new macroeconomic orthodoxy in the Eurozone: a Post-Keynesian view

The main aim of this paper is to empirically test the endogenous money hypothesis for the Eurozone. Based on data on loans to private sector, deposits, monetary aggregates, prices and GDP we use three empirical approaches to test the hypothesis: (i) moving correlation; (ii) Granger causality tests and (iii) original framework for the analysis based on the structural VAR model. The empirical results confirm our main hypothesis on the endogeneity of money in the Eurozone as they show that the commonly accepted neoclassical relations between monetary variables, inflation and economic activity are reversed in case of Eurozone and that the direction of influence goes from loans to deposits and from real sector of the economy towards the monetary sector. The basic conclusion from carried out research is that ECB should implement measures directly aimed at stimulation of domestic demand (monetary-supported tax cut).