Monetary Policy Visualization

Monetary Regimes

Dr. Matthias Schnetzer

October 19, 2026

What is money?

Money is often introduced in textbooks as a neutral technical device that solves the inefficiencies of barter — a “medium of exchange” that emerged spontaneously to avoid the problem of a double coincidence of wants.

A (Post-)Keynesian perspective instead treats money as a social and credit relation: money is fundamentally a unit of account for debt, and most money in modern economies exists as IOUs — promises to pay, recorded on balance sheets.

This distinction matters enormously for how we think about who creates money, what limits its creation, and what central banks can and cannot do.

Functions of money

Unit of account — the measure in which prices, debts and contracts are denominated
Medium of exchange — used to settle transactions
Store of value — a way to hold wealth over time
Means of final settlement of debt — this is the function (Post-) Keynesians emphasize

For (Post-)Keynesians, money is above all a way of settling debt obligations in a monetary production economy: firms borrow to produce before they sell, and money bridges this gap between outlays and receipts (Keynes’ finance motive).

Two views on the origin of money

Neoclassical / mainstream

Money emerged to overcome the inefficiencies of barter
Historically and logically commodity-based (gold, silver)
Government and banks essentially replace the commodity with tokens of equal value

(Post-)Keynesian

Historical and anthropological evidence finds little support for a barter origin
Money originates in credit and debt relations, often tied to tax obligations to the state (chartalism)
Money is a social institution, not a commodity

How is money created?

Most money in modern economies is not created by central banks printing currency, but by commercial banks when they extend credit.

“Loans create deposits”

When a bank grants a loan, it simultaneously creates a matching deposit on the borrower’s account — a balance sheet expansion, not a transfer of pre-existing funds.

This is the principle of endogenous money: the money supply expands and contracts with the demand for credit in the economy, rather than being fixed exogenously by the central bank.

The role of banks

Commercial banks do not simply act as intermediaries that lend out pre-existing deposits from savers to borrowers (loanable funds theory)
Instead, they create purchasing power “out of nothing” when granting a loan, subject to profitability considerations and regulatory constraints (capital and liquidity requirements)
Reserves at the central bank are needed for interbank settlement, not as a precondition for lending

This overturns the textbook “money multiplier” story, in which the central bank sets the monetary base and banks mechanically multiply it into a fixed volume of loans.

Neoclassical view: the money multiplier

The central bank sets the quantity of bank reserves (the monetary base)
Banks lend out a fraction of these reserves and deposits, subject to a reserve requirement
The money supply is a stable multiple of the monetary base: \[M = m \times B\]
Money is exogenous: it is a stock controlled directly by the central bank

Implication: controlling the growth of the money supply (monetarism) is seen as the key lever to control inflation.

(Post-)Keynesian view: endogenous money

Loan demand from firms and households drives credit creation by commercial banks
Central banks do not fix the quantity of reserves; they accommodate banks’ demand for reserves at a chosen policy interest rate
Causation runs from loans to deposits to reserves — the reverse of the multiplier story
Money is endogenous: its quantity adjusts to the needs of economic activity

This is often called the horizontalist view — central banks set the price of reserves (the interest rate) and supply whatever quantity of reserves banks need at that rate.

The role of central banks

Central banks act as the lender of last resort to the banking system, ensuring liquidity and settlement of interbank payments
Modern central banks primarily operate by setting a short-term policy interest rate rather than a fixed money supply target
They influence economic activity indirectly, through the cost of credit, exchange rates and expectations
Quantitative easing (QE) expands central bank reserves and asset holdings, but does not mechanically translate into a proportional expansion of bank lending

Key differences at a glance

Question	Neoclassical / mainstream	(Post-)Keynesian
What is money?	Evolved from barter, ultimately commodity-based	A social/credit relation, unit of account for debt
How is money created?	Central bank controls the monetary base; multiplier	Banks create money endogenously via loans
Money supply	Exogenous, set by the central bank	Endogenous, demand-determined
Central bank tool	Controls quantity of money/reserves	Sets the price (interest rate) of reserves
Inflation	“Always and everywhere a monetary phenomenon” (quantity theory)	Driven by costs, distributional conflict, demand pressures
Saving & investment	Saving enables investment (loanable funds)	Investment generates the saving needed to finance it

Why this matters for monetary policy

These theoretical differences are not merely academic — they shape how economists interpret real-world policy:

Whether quantitative easing should be expected to be inflationary
Whether interest rate hikes are the appropriate tool against all types of inflation
Whether fiscal deficits are inherently constrained by “crowding out” of private investment
How financial instability and banking crises originate endogenously in credit cycles

What is a monetary regime?

A monetary regime is the set of institutional rules that govern how money is created, valued and exchanged — both domestically (what anchors the value of money) and internationally (how a currency relates to other currencies).

Key dimensions of a monetary regime:

What (if anything) backs or anchors the currency’s value
How exchange rates with other currencies are determined
How much discretion the central bank has over monetary policy
What nominal target, if any, policy is oriented towards (money supply, exchange rate, inflation rate)

The gold standard

Under the classical gold standard (roughly 1870s–1914), currencies were pegged to a fixed quantity of gold and freely convertible.

Exchange rates between countries were effectively fixed
Balance-of-payments adjustment worked through gold flows and the “price-specie-flow mechanism”: deficit countries lost gold, contracting money supply, prices and demand, restoring balance
Domestic monetary policy was largely subordinated to maintaining convertibility

Critique: this mechanism imposed painful deflation and unemployment on deficit countries — a recurring (Post-)Keynesian concern about “external constraints” on domestic policy autonomy.

Bretton Woods (1944–1971)

Currencies pegged to the US dollar, which was itself convertible into gold at a fixed rate
Adjustable pegs allowed for occasional realignments, unlike the rigid gold standard
Capital controls gave countries more room for independent domestic policy (full employment, growth) — closer to the Keynesian vision at its founding (Keynes was a key architect)
Collapsed in 1971 when the US suspended dollar–gold convertibility

From fixed to floating exchange rates

Since the 1970s, most major currencies float against each other, with values determined by supply and demand in foreign exchange markets rather than by a fixed peg.

This raises the classic “impossible trinity” / trilemma: a country cannot simultaneously have

A fixed exchange rate
Free international capital mobility
An independent monetary policy

— it can choose at most two of the three (Mundell-Fleming).

Monetarism and money supply targeting

In the 1970s–80s, several central banks (e.g. the Bundesbank, the Fed under Volcker) explicitly targeted the growth rate of the money supply, following the monetarist prescription that controlling money growth controls inflation.

In practice, this proved difficult: the relationship between measured monetary aggregates and inflation was unstable, partly because — as the endogenous money view predicts — the money supply responds to economic activity rather than being a lever fully under the central bank’s control.

The consequence was the Volcker shock: in 1979, the Fed increased interest rates sharply to curb double-digit inflation. The federal funds rate peaked at 20% in 1981, triggering a severe recession and a steep rise in unemployment, but inflation fell from around 13% in 1980 to below 4% by 1983.

Inflation targeting

Since the 1990s, the dominant regime among major central banks (ECB, Fed, Bank of England, …) has been inflation targeting:

An explicit numerical inflation target (commonly around 2%)
The policy interest rate is the main instrument, adjusted in response to the outlook for inflation and economic activity
Central banks are typically granted formal independence from elected governments to pursue this target
Communication and credibility (“forward guidance”) become central tools alongside the interest rate itself

Monetary regimes: a comparative view

Regime	Anchor	Exchange rate	Policy autonomy
Gold standard	Gold	Fixed	Very limited
Bretton Woods	US dollar / gold	Fixed but adjustable	Moderate (with capital controls)
Monetarist money targeting	Money supply growth	Floating	Rule-based, limited discretion
Inflation targeting	Inflation rate	Mostly floating	Discretionary, but rule-guided
Currency union (e.g. euro area)	Common currency, single central bank	Fixed within the union	None for individual members

(Post-)Keynesians stress that the choice of regime is never purely technical: each regime distributes policy autonomy and adjustment burdens differently between countries, and between capital and labour.

Pioneers of data visualization

William Playfair (1759-1823)

John Snow (1813-1858)

Charles Joseph Minard (1781-1870)

W.E.B. Du Bois (1868-1963)

Otto Neurath (1882-1945)

Five guidelines for better visualization

1. Choose the adequate type of graph

Bad:

Good:

Choose a chart type with respect to your data (numeric, categorical, ranking, time series etc.)
What would you like to show: comparison, distribution, composition, relationship?
To help you find the adequate type from a myriad of alternatives, you can also take a look at https://www.data-to-viz.com and https://datavizproject.com

A simple decision tree of chart types

2. Visualize data accurately and faithfully

Bad:
Good:

Prioritize data accuracy, clarity, and integrity
Avoid misleading the reader by truncating the y-axis, using two different y-axis, cherry-picking data, not providing context, etc.
A good story based on data visualization does not involve deceptive manipulation of the data!

Example

Another example

A third example

3. Integrate graphics and text

Bad:
Good:

Don’t make people turn their head to read labels
Think about a logical order of the chart (alphabetical, values)
Add direct labels rather than a legend
Choose a meaningful title that focuses on your message

Best practice

4. Reduce the clutter

Bad:
Good:

Unnecessary visual elements distract the readers from the central data
Avoid elements that do not contain information!
Basic elements like heavy tick marks or gridlines should be removed
Think carefully which visual elements are really needed to read the chart

Best practice

5. Avoid the spaghetti chart and start with gray

Bad:

Good:

When the graph contains too much information, it looks like spaghetti
Try to break overloaded single charts into smaller parts (facets, small multiples) or highlight the relevant information
Start with gray: you are forced to be strategic in the use of color, labels, etc.

Best practice

Deceptive graphs

Misleading titles

Deceptive graphs meet their goal

The Gestalt Principles

What are the Gestalt Principles?

Gestalt Principles describe how humans group similar elements, recognize patterns and simplify complex images. “Gestalt” is German for “unified whole”.

The question is how humans typically gain meaningful perceptions from the chaotic stimuli around them. The idea is that the mind “informs” what the eye sees by perceiving a series of individual elements as a whole.

Which chart is random and which has structure in it?

Gestalt rules

Proximity Things that are spatially near to one another seem to be related.
Similarity Things that look alike seem to be related.
Connection Things that are visually tied to one another seem to be related.
Continuity Partially hidden objects are completed into familiar shapes.
Closure Incomplete shapes are perceived as complete.
Figure and Ground Visual elements are taken to be either in the foreground or the background.
Common Fate Elements sharing a direction of movement are perceived as a unit.

Our brains look for structure

Bibliography

Dougherty, Jack/Ilyankou, Ilya (2021). Hands-on data visualization: Interactive storytelling from spreadsheets to code. O’Reilly Media.

Healy, Kieran (2018). Data visualization: A practical introduction. Princeton University Press.

Lauer, Claire/O'Brien, Shaun (2020). How People Are Influenced by Deceptive Tactics in Everyday Charts and Graphs. IEEE Transactions on Professional Communication, 63(4), 327–340. DOI: 10.1109/tpc.2020.3032053

Schwabish, Jonathan A. (2014). An Economist’s Guide to Visualizing Data. Journal of Economic Perspectives, 28(1), 209–234. DOI: 10.1257/jep.28.1.209