Money supply

About: Money supply is a research topic. Over the lifetime, 7868 publications have been published within this topic receiving 126693 citations. The topic is also known as: money stock.

Developments in the study of cointegrated economic variables

Abstract: At the least sophisticated level of economic theory lies the belief that certain pairs of economic variables should not diverge from each other by too great an extent, at least in the long-run. Thus, such variables may drift apart in the short-run or according to seasonal factors, but if they continue to be too far apart in the long-run, then economic forces, such as a market mechanism or government intervention, will begin to bring them together again. Examples of such variables are interest rates on assets of different maturities, prices of a commodity in different parts ofthe country, income and expenditure by local government and the value of sales and production costs of an industry. Other possible examples would be prices and wages, imports and exports, market prices of substitute commodities, money supply and prices and spot and future prices of a commodity. In some cases an economic theory involving equilibrium concepts might suggest close relations in the long-run, possibly with the addition of yet further variables. However, in each case the correctness of the beliefs about long-term relatedness is an empirical question. The idea underlying cointegration allows specification of models that capture part of such beliefs, at least for a particular type of variable that is frequently found to occur in macroeconomics. Since a concept such as the long-run is a dynamic one, the natural area for these ideas is that of time-series theory and analysis. It is thus necessary to start by introducing some relevant time series models. Consider a single series Xf, measured at equal intervals of time. Time series theory starts by considering the generating mechanism for the series. This mechanism should be able to generate att of the statistical properties of the series, or at very least the conditional mean, variance and temporal autocorrelations, that is the 'linear properties' of the series, conditional on past data. Some series appear to be 'stationary', which essentially implies that the linear properties exist and are timeinvariant. Here we are concerned with the weaker but more technical

Long-term contracts, rational expectations and the optimal money supply rule

Abstract: The paper is concerned with the role of monetary policy and argues that activist monetary policy can affect the behavior of real output, rational expectations notwithstanding. A rational expectations model with overlapping labor contracts is constructed, with each labor contract being made for two periods. These contracts inject an element of short-run wage stickiness into the model. Because the money stock is changed by the monetary authority more frequently than labor contracts are renegotiated, and, given the assumed form of the labor contracts, monetary policy has the ability to affect the short-run behavior of output, though it has no effects on long-run output behavior.

A Monetary History of the United States, 1867–1960

Abstract: Writing in the June 1965 issue of theEconomic Journal, Harry G. Johnson begins with a sentence seemingly calibrated to the scale of the book he set himself to review: "The long-awaited monetary history of the United States by Friedman and Schwartz is in every sense of the term a monumental scholarly achievement--monumental in its sheer bulk, monumental in the definitiveness of its treatment of innumerable issues, large and small . . . monumental, above all, in the theoretical and statistical effort and ingenuity that have been brought to bear on the solution of complex and subtle economic issues." Friedman and Schwartz marshaled massive historical data and sharp analytics to support the claim that monetary policy--steady control of the money supply--matters profoundly in the management of the nation's economy, especially in navigating serious economic fluctuations. In their influential chapter 7, The Great Contraction--which Princeton published in 1965 as a separate paperback--they address the central economic event of the century, the Depression. According to Hugh Rockoff, writing in January 1965: "If Great Depressions could be prevented through timely actions by the monetary authority (or by a monetary rule), as Friedman and Schwartz had contended, then the case for market economies was measurably stronger." Milton Friedman won the Nobel Prize in Economics in 2000 for work related to A Monetary History as well as to his other Princeton University Press book, A Theory of the Consumption Function (1957).

"Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule

Abstract: Alternative monetary policies are analyzed in an ad hoc macroeconomic model in which the public's expectations about prices are rational. The ad hoc model is one in which there is long-run neutrality, since it incorporates the aggregate supply schedule proposed by Lucas. Following Poole, the paper studies whether pegging the interest rate or pegging the money supply period by period minimizes an ad hoc quadratic loss function. It turns out that the probility distribution of output--dispersion as well as mean--is independent of the particular deterministic money supply rule in effect, and that under an interest rate rule the price level is indeterminate.

Domestic Financial Policies Under Fixed and Under Floating Exchange Rates

Abstract: T HE BEARING of exchange rate systems on the relative effectiveness of monetary policy on the one hand, and of budgetary policy on the other, as techniques for influencing the level of monetary demand for domestic output, is not always kept in mind when such systems are compared. In this paper it is shown that the expansionary effect of a given increase in money supply will always be greater if the country has a floating exchange rate than if it has a fixed rate. By contrast, it is uncertain whether the expansionary effect on the demand for domestic output of a given increase in budgetary expenditure or a given reduction in tax rates will be larger or smaller with a floating than with a fixed rate. In all but extreme cases, the stimulus to monetary demand arising from an increase in money supply will be greater, relative to that arising from an expansionary change in budgetary policy, with a floating than with a fixed rate of exchange.