House Prices, Rents, and Wage Adjustment: Evidence from the U.S. Services Inflation Pipeline

The Empirical Failure of the Euler Equation Under Endogenous Money
A Structural and Econometric Refutation of the NK Consumption Block Appendix B — Methodology Appendix

Appendix D — Empirical Refutation of the Money-as-Veil Hypothesis

Therefore:

Money supply growth is not the macroeconomic driver of output or prices.
Bank credit creation is the driver. D.2 Data and Methodology

“Steve Keen’s house-price ↔ credit impulse result isn’t just a correlation.
Under Kalecki–Godley accounting and endogenous credit, house prices must follow the acceleration of credit.
It’s not a coincidence — it’s macro theory.” House prices do not just follow the level of debt; they respond to the change in the credit impulse — the acceleration of mortgage credit.

Lemma 2 (Kalecki–Godley Equivalence under Endogenous Credit) Sectoral Financial Balances (Godley)

Proof that the Euler Equation Fails Under Endogenous Money

It is not merely empirically inaccurate; its behavioural and resource-constraint foundations are invalid in an endogenous-money system. 2. Endogenous money

Crucially, ΔLt is not chosen by the representative household and is not pinned down by rt. It is a separate, banking-sector decision.

Why Endogenous Money Eliminates the IS Curve: A Formal Proof

...Therefore, in an endogenous-money economy, the IS curve is not merely inaccurate—it is undefined. THANK/HANK models, which rely on the IS curve as a foundational object, cannot represent the real-world monetary system. @FlorinBilbiie The proof proceeds by showing that each of these assumptions is violated in an endogenous-money framework, thereby invalidating the Euler equation at the aggregate level and eliminating the IS curve.

“Managed liabilities are only needed for deposit replacement — not for lending itself.”

...."The more deposits stay internal, the less funding is needed — and the easier credit creation becomes."

https://twitter.com/wbmosler/status/1994170263366193535

Managed liabilities are only needed for deposit replacement — not for lending itself.
They respond to outflows, not to loan creation.

Seth B. Carpenter and Selva Demiralp (2010)

Every statistical, institutional, and balance-sheet test in this paper points to the same conclusion:
Banks do not lend out reserves, the money multiplier does not operate, and lending responds to loan demand—not reserve supply. Managed liabilities DO Granger-cause bank loans

“Econometrically and by accounting, savings do not drive deposits — deposits drive savings.”

A careful examination of both balance-sheet identities and formal econometric tests leads to an unambiguous conclusion: household savings are not the source of bank deposits, and therefore cannot constrain bank lending. @GeorgeSelgin @CascadiaEric @robox1234 @edwin_teejay Instead, the sequence runs the other way: bank credit creation expands deposits, and households subsequently hold a portion of those deposits as ‘savings’.

“It is difficult to maintain that profits are determined by marginal products when a purely accounting-based, sector-balance identity can replicate them so precisely.”

~95% confidence that marginal-product theories cannot explain profit levels, and that sector-balance mechanics do explain them. @RelearningEcon Empirical Consistency Between the Kalecki Profit Identity and Measured Corporate Profits

This remarkable correspondence indicates that the macro-accounting identity captures the dominant forces governing the evolution of corporate profits over the long run.

The 30–180 Day Nominal Refinancing Loop in Modern Banking

In aggregate, credit expansion is not constrained by prior saving.
It is sustained by the nominal GDP growth (including inflation) that credit itself creates. Short-term, nominal funding is the structural reality of banking

Thus the average bank is constantly refinancing a large portion of its balance sheet in nominal terms, every 1–6 months.

@GeorgeSelgin Savings Driving Credit Test Results:

"There is no empirical support for the claim that saving drives or funds lending.
Constrained-lending theory fails its core prediction."

Overall Confidence:
P ≈ 0.99999 (99.999% confidence) @GeorgeSelgin To evaluate the core claim of constrained lending or Loanable-Funds Intermediationism—namely, that saving must rise before banks can expand credit—we ran a full set of VAR and Granger-causality tests using U.S. quarterly data.
The results are unambiguous:

Why Kalecki, Godley, and Minsky Are Unified Kalecki provides the Income–Distribution Structure

Kalecki = Godley: The Unified Income–Financing Identity

A central result of this paper is that Kalecki’s profit identity and Godley’s sectoral balances identity are not separate theoretical constructions but two expressions of the same underlying mechanism, viewed from different sides of the national accounts. Kalecki presents the income side; Godley presents the financing side.
Once placed within a stock–flow consistent (SFC) framework, the equivalence becomes exact.

Stock–Flow Consistent Formulation of
Kalecki–Young Sectoral Inflation Decomposition (KYSID)

"Recasting KYSID within a stock–flow consistent (SFC) framework clarifies that the inflation process is a balance-sheet outcome." Core flow-of-funds identity

Kalecki–Young Sectoral Inflation Decomposition (KYSID)

"It lets you both model inflation and attribute it sectorally—to wages, productivity, domestic debt saturation, and the external / tradables channel—within a consistent stock–flow, income‑distribution perspective." Kalecki–Young Sectoral Inflation Decomposition (KYSID)

Empirically, U.S. Inflation Follows the Kalecki Distributional Equation

Inflation in the United States is primarily profit-led in structure, wage-amplified in the short run, and productivity-limited in scope. This relation implies that inflation arises from the distribution of income between labor and capital, not from expectations.

The Constant-Rate Interest Burden as the Hidden Driver of Capital Share: Evidence from Balance-Sheet Saturation

This balance-sheet mechanism explains the secular rise in the capital share and the decline in labor share observed since the 1980s without appealing to exogenous technology shocks. Conceptually, it represents the interest-service load that would prevail if monetary policy had not reduced nominal rates in response to debt expansion. While the actual burden rtL/Y fluctuates with policy cycles, the constant-rate version isolates the structural leverage component, reflecting the underlying stock of liabilities relative to income.

Ergodicity vs expected-utility assumes the return distribution is exogenous.
But in a credit economy, returns are endogenously driven by balance-sheet expansion (A≈L).
Investors maximize share of system claims subject to leverage guardrails — not abstract utility or stationary distributions.
Kelly works within a balance-sheet regime, not instead of one. @farmerrf

https://x.com/JamesYo43532848/status/1951921086452670816

The Labor Channel Is Not a Causal Driver of Inflation: VAR Evidence from the United States Thus, inflation and wages are not driven by labor conditions; they respond to the credit cycle and the associated demand and price dynamics. The NK causal chain is reversed.