economic activity. The basic premise of classical banking theory is that transactions are typically paid for by incurring debt …, and that the role of the banking system is the monetization of this transaction-based debt. In this framework bank … liabilities are the principal form of money, and they circulate because they are backed by debt that can be repaid by depositing …

decrease in total output. We show that pre-crisis contractionary monetary policy interacts with Fisherian debt …