Purchasing Power of Money
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A Model of Bimetallism
Federal Reserve Bank of Minneapolis Research Department A Model of Bimetallism François R. Velde and Warren E. Weber Working Paper 588 August 1998 ABSTRACT Bimetallism has been the subject of considerable debate: Was it a viable monetary system? Was it a de- sirable system? In our model, the (exogenous and stochastic) amount of each metal can be split between monetary uses to satisfy a cash-in-advance constraint, and nonmonetary uses in which the stock of un- coined metal yields utility. The ratio of the monies in the cash-in-advance constraint is endogenous. Bi- metallism is feasible: we find a continuum of steady states (in the certainty case) indexed by the constant exchange rate of the monies; we also prove existence for a range of fixed exchange rates in the stochastic version. Bimetallism does not appear desirable on a welfare basis: among steady states, we prove that welfare under monometallism is higher than under any bimetallic equilibrium. We compute welfare and the variance of the price level under a variety of regimes (bimetallism, monometallism with and without trade money) and find that bimetallism can significantly stabilize the price level, depending on the covari- ance between the shocks to the supplies of metals. Keywords: bimetallism, monometallism, double standard, commodity money *Velde, Federal Reserve Bank of Chicago; Weber, Federal Reserve Bank of Minneapolis and University of Minne- sota. We thank without implicating Marc Flandreau, Ed Green, Angela Redish, and Tom Sargent. The views ex- pressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Chicago, the Fed- eral Reserve Bank of Minneapolis, or the Federal Reserve System. -
Virtual Currencies in the Eurosystem: Challenges Ahead
STUDY Requested by the ECON committee Virtual currencies in the Eurosystem: challenges ahead Monetary Dialogue July 2018 Policy Department for Economic, Scientific and Quality of Life Policies Authors: Rosa María LASTRA, Jason Grant ALLEN Directorate-General for Internal Policies EN PE 619.020 – July 2018 Virtual currencies in the Eurosystem: challenges ahead Monetary Dialogue July 2018 Abstract Speculation on Bitcoin, the evolution of money in the digital age, and the underlying blockchain technology are attracting growing interest. In the context of the Eurosystem, this briefing paper analyses the legal nature of privately issued virtual currencies (VCs), the implications of VCs for central bank’s monetary policy and monopoly of note issue, and the risks for the financial system at large. The paper also considers some of the proposals concerning central bank issued virtual currencies. This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs. This document was requested by the European Parliament's Committee on Economic and Monetary Affairs. AUTHORS Rosa María LASTRA, Centre for Commercial Law Studies, Queen Mary University of London Jason Grant ALLEN, Humboldt-Universität zu Berlin Centre for British Studies, University of New South Wales Centre for Law Markets and Regulation ADMINISTRATOR RESPONSIBLE Dario PATERNOSTER EDITORIAL ASSISTANT Janetta CUJKOVA LINGUISTIC VERSIONS Original: EN ABOUT THE EDITOR Policy departments provide in-house and external expertise to support EP committees -
Final Years of the Silver Standard in Mexico: Evidence of Purchasing Power Parity with the United States
Munich Personal RePEc Archive Final Years of the Silver Standard in Mexico: Evidence of Purchasing Power Parity with The United States Bojanic, Antonio N. 2 May 2011 Online at https://mpra.ub.uni-muenchen.de/45535/ MPRA Paper No. 45535, posted 27 Mar 2013 02:12 UTC final years of the silver standard in mexico: evidence of purchasing power parity with the united states Antonio N. Bojanic* Professor of Economics / CENTRUM – Pontificia Universidad Católica del Perú Urbanización – Los Alamos de Monterrico – Surco, Perú ABSTRACT RESUMO This paper focuses on the use of silver as Este artigo enfoca o uso da prata como padrão a monetary standard in Mexico during monetário no México, durante aproximada- approximately the last three decades of the mente as três últimas décadas do século XIX nineteenth century and the first decade of e primeira década do século XX. Durante the twentieth century. During this period, esse período, vários eventos ocorreram no several events occurred in the market for mercado de prata, que afetaram os países silver that affected those countries attached atrelados a este metal. Estes eventos causa- to this metal. These events caused some ram alguns destes países a abandonar a prata of these countries to abandon silver for para o bem e adotar outros tipos de regime good and adopt other types of monetary monetário. México e alguns outros, preferiu arrangements. Mexico and a few others ficar com ele. As razões desta decisão são chose to stay with it.The reasons behind this analisados. Além disso prova, que apoia a decision are analyzed. Additionally, evidence teoria da paridade do poder de compra entre that supports the theory of purchasing power o México e os Estados Unidos são também parity between Mexico and the United States apresentados e analisados. -
Gold As a Store of Value
WORLD GOLD COUNCIL GOLD AS A STORE OF VALUE By Stephen Harmston Research Study No. 22 GOLD AS A STORE OF VALUE Research Study No. 22 November 1998 WORLD GOLD COUNCIL CONTENTS EXECUTIVE SUMMARY ..............................................................................3 THE AUTHOR ..............................................................................................4 INTRODUCTION..........................................................................................5 1 FIVE COUNTRIES, ONE TALE ..............................................................9 1.1 UNITED STATES: 1796 – 1997 ..................................................10 1.2 BRITAIN: 1596 – 1997 ................................................................14 1.3 FRANCE: 1820 – 1997 ................................................................18 1.4 GERMANY: 1873 – 1997 ............................................................21 1.5 JAPAN: 1880 – 1997....................................................................24 2 THE RECENT GOLD PRICE IN RELATION TO HISTORIC LEVELS....28 2.1 THE AVERAGE PURCHASING POWER OF GOLD OVER TIME ................................................................................28 2.2 DEMAND AND SUPPLY FUNDAMENTALS ............................31 3 TOTAL RETURNS ON ASSETS ..........................................................35 3.1 CUMULATIVE WEALTH INDICES: BONDS, STOCKS AND GOLD IN THE US 1896-1996 ....................................................35 3.2 COMPARISONS WITH BRITAIN ..............................................38 -
The Origins of Velocity Functions
The Origins of Velocity Functions Thomas M. Humphrey ike any practical, policy-oriented discipline, monetary economics em- ploys useful concepts long after their prototypes and originators are L forgotten. A case in point is the notion of a velocity function relating money’s rate of turnover to its independent determining variables. Most economists recognize Milton Friedman’s influential 1956 version of the function. Written v = Y/M = v(rb, re,1/PdP/dt, w, Y/P, u), it expresses in- come velocity as a function of bond interest rates, equity yields, expected inflation, wealth, real income, and a catch-all taste-and-technology variable that captures the impact of a myriad of influences on velocity, including degree of monetization, spread of banking, proliferation of money substitutes, devel- opment of cash management practices, confidence in the future stability of the economy and the like. Many also are aware of Irving Fisher’s 1911 transactions velocity func- tion, although few realize that it incorporates most of the same variables as Friedman’s.1 On velocity’s interest rate determinant, Fisher writes: “Each per- son regulates his turnover” to avoid “waste of interest” (1963, p. 152). When rates rise, cashholders “will avoid carrying too much” money thus prompting a rise in velocity. On expected inflation, he says: “When...depreciation is anticipated, there is a tendency among owners of money to spend it speedily . the result being to raise prices by increasing the velocity of circulation” (p. 263). And on real income: “The rich have a higher rate of turnover than the poor. They spend money faster, not only absolutely but relatively to the money they keep on hand. -
Redalyc.Theory of Money of David Ricardo
Lecturas de Economía ISSN: 0120-2596 [email protected] Universidad de Antioquia Colombia Takenaga, Susumu Theory of Money of David Ricardo: Quantity Theory and Theory of Value Lecturas de Economía, núm. 59, julio-diciembre, 2003, pp. 73-126 Universidad de Antioquia .png, Colombia Available in: http://www.redalyc.org/articulo.oa?id=155218004003 How to cite Complete issue Scientific Information System More information about this article Network of Scientific Journals from Latin America, the Caribbean, Spain and Portugal Journal's homepage in redalyc.org Non-profit academic project, developed under the open access initiative . El carro del heno, 1500 Hieronymus Bosch –El Bosco– Jerónimo, ¿vos cómo lo ves?, 2002 Theory of Money of David Ricardo: Quantity Theory and Theory of Value Susumu Takenaga Lecturas de Economía –Lect. Econ.– No. 59. Medellín, julio - diciembre 2003, pp. 73-126 Theory of Money of David Ricardo : Quantity Theory and Theory of Value Susumu Takenaga Lecturas de Economía, 59 (julio-diciembre, 2003), pp.73-126 Resumen: En lo que es necesario enfatizar, al caracterizar la teoría cuantitativa de David Ricardo, es en que ésta es una teoría de determinación del valor del dinero en una situación particular en la cual se impide que el dinero, sin importar cual sea su forma, entre y salga libremente de la circulación. Para Ricardo, la regulación del valor del dinero por su cantidad es un caso particular en el cual el ajuste del precio de mercado al precio natural requiere un largo periodo de tiempo. La determinación cuantitativa es completamente inadmisible, pero solo cuando el período de observación es más corto que el de ajuste. -
Burgernomics: a Big Mac Guide to Purchasing Power Parity
Burgernomics: A Big Mac™ Guide to Purchasing Power Parity Michael R. Pakko and Patricia S. Pollard ne of the foundations of international The attractive feature of the Big Mac as an indi- economics is the theory of purchasing cator of PPP is its uniform composition. With few power parity (PPP), which states that price exceptions, the component ingredients of the Big O Mac are the same everywhere around the globe. levels in any two countries should be identical after converting prices into a common currency. As a (See the boxed insert, “Two All Chicken Patties?”) theoretical proposition, PPP has long served as the For that reason, the Big Mac serves as a convenient basis for theories of international price determina- market basket of goods through which the purchas- tion and the conditions under which international ing power of different currencies can be compared. markets adjust to attain long-term equilibrium. As As with broader measures, however, the Big Mac an empirical matter, however, PPP has been a more standard often fails to meet the demanding tests of elusive concept. PPP. In this article, we review the fundamental theory Applications and empirical tests of PPP often of PPP and describe some of the reasons why it refer to a broad “market basket” of goods that is might not be expected to hold as a practical matter. intended to be representative of consumer spending Throughout, we use the Big Mac data as an illustra- patterns. For example, a data set known as the Penn tive example. In the process, we also demonstrate World Tables (PWT) constructs measures of PPP for the value of the Big Mac sandwich as a palatable countries around the world using benchmark sur- measure of PPP. -
How Real Is the Threat of Deflation to the Banking Industry?
An Update on Emerging Issues in Banking How Real is the Threat of Deflation to the Banking Industry? February 27, 2003 Overview The recession that began in March 2001 has had a generally benign effect on the banking industry, which remains highly profitable and well capitalized. The current financial strength of the industry is an important buffer against the effects of economic shocks. Nevertheless, the Federal Deposit Insurance Corporation (FDIC) routinely considers a number of economic scenarios that could develop over the next several quarters to evaluate factors that could result in the erosion in the financial health of individual banks or the industry. One such scenario that could present a major challenge to the banking industry involves deflation. This paper outlines the current debate over deflation, focusing on its potential effect on the banking industry. What is Deflation and How Does It Affect the Economy? Deflation refers to a decline in the general price level, usually caused by a sharp decline in money or credit supply or a severe contraction in the economy.1 Although sometimes used interchangeably, deflation differs from disinflation -- a falling rate of inflation. Although there have been sector-specific downward price adjustments, the U.S. economy has not experienced an outright decline in the aggregate price level since World War II, except for a brief and mild deflation in 1949.2 However, the inflation rate in the U.S. has fallen steadily since the early 1980s. In order to fully understand the effect of deflation on economic output, it is important to differentiate the concept of a "real" value from a "nominal" value. -
America's Economic Way Of
|America’s Economic Way of War How did economic and financial factors determine how America waged war in the twentieth century? This important new book exposes the influence of economics and finance on the questions of whether the nation should go to war, how wars would be fought, how resources would be mobilized, and the long-term consequences for the American economy. Ranging from the Spanish–American War to the Gulf War, Hugh Rockoff explores the ways in which war can provide unique opportunities for understanding the basic principles of economics as wars produce immense changes in monetary and fiscal policy and so provide a wealth of infor- mation about how these policies actually work. He shows that wars have been more costly to the United States than most Americans realize as a substantial reliance on borrowing from the public, money creation, and other strategies to finance America’s war efforts have hidden the true cost of war. hugh rockoff is a professor of Economics at Rutgers, the State University of New Jersey, and a research associate of the National Bureau of Economic Research. His publications include numerous papers in professional journals, The Free Banking Era: A Re-examination (1975), Drastic Measures: A History of Wage and Price Controls in the United States (1984), and a textbook, History of the American Economy (2010, with Gary Walton). NEW APPROACHES TO ECONOMIC AND SOCIAL HISTORY series editors Nigel Goose, University of Hertfordshire Larry Neal, University of Illinois, Urbana-Champaign New Approaches to Economic and Social History is an important new textbook series published in association with the Economic History Society. -
Modern Monetary Theory: a Marxist Critique
Class, Race and Corporate Power Volume 7 Issue 1 Article 1 2019 Modern Monetary Theory: A Marxist Critique Michael Roberts [email protected] Follow this and additional works at: https://digitalcommons.fiu.edu/classracecorporatepower Part of the Economics Commons Recommended Citation Roberts, Michael (2019) "Modern Monetary Theory: A Marxist Critique," Class, Race and Corporate Power: Vol. 7 : Iss. 1 , Article 1. DOI: 10.25148/CRCP.7.1.008316 Available at: https://digitalcommons.fiu.edu/classracecorporatepower/vol7/iss1/1 This work is brought to you for free and open access by the College of Arts, Sciences & Education at FIU Digital Commons. It has been accepted for inclusion in Class, Race and Corporate Power by an authorized administrator of FIU Digital Commons. For more information, please contact [email protected]. Modern Monetary Theory: A Marxist Critique Abstract Compiled from a series of blog posts which can be found at "The Next Recession." Modern monetary theory (MMT) has become flavor of the time among many leftist economic views in recent years. MMT has some traction in the left as it appears to offer theoretical support for policies of fiscal spending funded yb central bank money and running up budget deficits and public debt without earf of crises – and thus backing policies of government spending on infrastructure projects, job creation and industry in direct contrast to neoliberal mainstream policies of austerity and minimal government intervention. Here I will offer my view on the worth of MMT and its policy implications for the labor movement. First, I’ll try and give broad outline to bring out the similarities and difference with Marx’s monetary theory. -
Measuring the Great Depression
Lesson 1 | Measuring the Great Depression Lesson Description In this lesson, students learn about data used to measure an economy’s health—inflation/deflation measured by the Consumer Price Index (CPI), output measured by Gross Domestic Product (GDP) and unemployment measured by the unemployment rate. Students analyze graphs of these data, which provide snapshots of the economy during the Great Depression. These graphs help students develop an understanding of the condition of the economy, which is critical to understanding the Great Depression. Concepts Consumer Price Index Deflation Depression Inflation Nominal Gross Domestic Product Real Gross Domestic Product Unemployment rate Objectives Students will: n Define inflation and deflation, and explain the economic effects of each. n Define Consumer Price Index (CPI). n Define Gross Domestic Product (GDP). n Explain the difference between Nominal Gross Domestic Product and Real Gross Domestic Product. n Interpret and analyze graphs and charts that depict economic data during the Great Depression. Content Standards National Standards for History Era 8, Grades 9-12: n Standard 1: The causes of the Great Depression and how it affected American society. n Standard 1A: The causes of the crash of 1929 and the Great Depression. National Standards in Economics n Standard 18: A nation’s overall levels of income, employment and prices are determined by the interaction of spending and production decisions made by all households, firms, government agencies and others in the economy. • Benchmark 1, Grade 8: Gross Domestic Product (GDP) is a basic measure of a nation’s economic output and income. It is the total market value, measured in dollars, of all final goods and services produced in the economy in a year. -
International Bimetallism
STATEMENT RESPECTING THE WORK OF THE RECENT INTERNATIONAL BIMETALLIC COMh!ISSION HON.EDWARD 0.WOLCOTTa I I OF COLORADO, IN THE SENATE OF THE UNITED STATES, JANUARY 17, 1898. P WASHINGTON. 1898. r .C m: e* 4'~tatementRespecting the Work of the Recent Internationel Bimetallic Conkmission, BY I4UN. EDWAED 0. WOLGOTT, OF COLORADO, INTIIE SENATEOF TIIE UNITEDSTATES, Jaizunry 17, 1538. Mr. WOLCOTT s3id: Mr. PRESIDENT:In the statement which I am glad to make respecting certain phases of the work of the recent bimetallic com- mission. I must s-vealc, of course, entirely unoficiallv and as not committing my associates in the slightest degree &ither to my opinions or deductions. Later in the session we are certain to have ample discussion on the subject of silver, and it will proba- bly be acrid and bitter enough. In my remarks to-day, however, I mean to avoid, as far as possible, anything which may give rise to controversy, and while the account of our negotiations must necsssarily seem bare and colorless, the subject of them is one of surpassing interest and importance to every member of the Senate and to every citizen of our country. When Congress met a year ago, soon after the national election, there was a universal expression by the Republican membei-ship &nthe Senate that the pledge of the party in its St. Louis platform to promote international bimetallism by every aeans in its power was an undertaking to be faithfully carried out without evasion or delay. As a result of this sentiment, and growing out of the action of the Republican menibers of the Senate, I spent the monthsof Jan- uary and February last in London and Paris, with a day or two at Berlin, inquiring unofficially as to the apparent prospects of securing bimetallism by international agreement.