Impacts of Liquidity Preference on Loan-to-Deposit Ratio and Regional Economic Growth: A Post-Keynesian View

In this study, we analyze the loan-to-deposit ratios (LDRs) and regional economic growth from the perspectives of Post-Keynesian endogenous money theory and liquidity preference theory. We also discover policy implications from the simulation results of a stock-flow consistent model. Contrary to the interpretation of exogenous money theory, we find that a low LDR in a region implies a high level of economic activity. Furthermore, regional economic gaps may emerge through the differences in the liquidity preferences of regions, that is, the liquidity preference differences among regions may lead to differences in various economic behavior, such as willingness to lend, investment propensity, and consumption propensity, which may exacerbate the regional economic gap. Therefore, regional finance should be examined from the perspectives of endogenous money theory and Keynesian theory of liquidity preference.