Pál Péter Kolozsi

The global financial crisis highlighted the limitations of the mainstream economic thinking. The post-crisis reflection has not resulted yet in any new paradigm, however, several new, still separate, innovative approaches appeared in the field of public finances and economic governance. The aim of the paper is to provide a structured presentation of these new innovative approaches, which can serve as a potential basis of a new way of thinking about economic and financial governance and the innovation of public finances. The paper reviews the relevant international literature published after the global financial crisis and, as a result, presents the innovations, especially in respect of the role of the state, the renewal of central banking, the reassessment of the stability and geopolitical aspects of economic policy, the relevance of confidence and cooperation in public policy, the increasing role of the public sector concerning the sustainability of economic development and the renaissance of institutional economics. Based on these new approaches, the paper concludes that the smart, inclusive and sustainable, innovation-led growth requires the rethinking of the role, the functions, the objectives and the instruments of public policy and economic governance.

Liquidity has an impact on short-term yields, which makes it a key determinant of monetary transmission. The aim of the research was to examine how the increase in the banking system’s liquidity and its distribution within the banking system affects yields. To better understand this relationship, this analysis gives an econometric estimate of the interbank liquidity demand function. The research covers Hungary being a representative of small, open, emerging market economies. The analysis is based on segmented regressions, the study covers the period 2016–2020 regarding overnight interest rates. The slope of the demand function is negative, the coefficients decrease with the increase in excess reserves. The most significant breakpoints of the demand curve are detected around 0.83% and 1.53% of M2 in excess liquidity. There is a correlation between the level of excess reserves and its distribution and concentration. The distribution of liquidity became more balanced along with the increase in excess liquidity. The saturation of the banking system depends on the concentration of liquidity among banks. The results can be useful for other small and open emerging market economies with abundant liquidity, especially in the coming tightening cycle.