Chapter 4: Money and Inflation (Long-Run Theory of Monetarism)
Total Page:16
File Type:pdf, Size:1020Kb
Load more
Recommended publications
-
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 -
Cryptocurrency: the Economics of Money and Selected Policy Issues
Cryptocurrency: The Economics of Money and Selected Policy Issues Updated April 9, 2020 Congressional Research Service https://crsreports.congress.gov R45427 SUMMARY R45427 Cryptocurrency: The Economics of Money and April 9, 2020 Selected Policy Issues David W. Perkins Cryptocurrencies are digital money in electronic payment systems that generally do not require Specialist in government backing or the involvement of an intermediary, such as a bank. Instead, users of the Macroeconomic Policy system validate payments using certain protocols. Since the 2008 invention of the first cryptocurrency, Bitcoin, cryptocurrencies have proliferated. In recent years, they experienced a rapid increase and subsequent decrease in value. One estimate found that, as of March 2020, there were more than 5,100 different cryptocurrencies worth about $231 billion. Given this rapid growth and volatility, cryptocurrencies have drawn the attention of the public and policymakers. A particularly notable feature of cryptocurrencies is their potential to act as an alternative form of money. Historically, money has either had intrinsic value or derived value from government decree. Using money electronically generally has involved using the private ledgers and systems of at least one trusted intermediary. Cryptocurrencies, by contrast, generally employ user agreement, a network of users, and cryptographic protocols to achieve valid transfers of value. Cryptocurrency users typically use a pseudonymous address to identify each other and a passcode or private key to make changes to a public ledger in order to transfer value between accounts. Other computers in the network validate these transfers. Through this use of blockchain technology, cryptocurrency systems protect their public ledgers of accounts against manipulation, so that users can only send cryptocurrency to which they have access, thus allowing users to make valid transfers without a centralized, trusted intermediary. -
Downward Nominal Wage Rigidities Bend the Phillips Curve
FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Downward Nominal Wage Rigidities Bend the Phillips Curve Mary C. Daly Federal Reserve Bank of San Francisco Bart Hobijn Federal Reserve Bank of San Francisco, VU University Amsterdam and Tinbergen Institute January 2014 Working Paper 2013-08 http://www.frbsf.org/publications/economics/papers/2013/wp2013-08.pdf The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. Downward Nominal Wage Rigidities Bend the Phillips Curve MARY C. DALY BART HOBIJN 1 FEDERAL RESERVE BANK OF SAN FRANCISCO FEDERAL RESERVE BANK OF SAN FRANCISCO VU UNIVERSITY AMSTERDAM, AND TINBERGEN INSTITUTE January 11, 2014. We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities. This is true for the both the long-run and the short-run Phillips curve. Comparing simulation results from the model with data on U.S. wage patterns, we show that downward nominal wage rigidities likely have played a role in shaping the dynamics of unemployment and wage growth during the last three recessions and subsequent recoveries. Keywords: Downward nominal wage rigidities, monetary policy, Phillips curve. JEL-codes: E52, E24, J3. 1 We are grateful to Mike Elsby, Sylvain Leduc, Zheng Liu, and Glenn Rudebusch, as well as seminar participants at EIEF, the London School of Economics, Norges Bank, UC Santa Cruz, and the University of Edinburgh for their suggestions and comments. -
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. -
1 the Scientific Illusion of New Keynesian Monetary Theory
The scientific illusion of New Keynesian monetary theory Abstract It is shown that New Keynesian monetary theory is a scientific illusion because it rests on moneyless Walrasian general equilibrium micro‐foundations. Walrasian general equilibrium models require a Walrasian or Arrow‐Debreu auction but this auction is a substitute for money and empties the model of all the issues of interest to regulators and central bankers. The New Keynesian model perpetuates Patinkin’s ‘invalid classical dichotomy’ and is incapable of providing any guidance on the analysis of interest rate rules or inflation targeting. In its cashless limit, liquidity, inflation and nominal interest rate rules cannot be defined in the New Keynesian model. Key words; Walrasian‐Arrow‐Debreu auction; consensus model, Walrasian general equilibrium microfoundations, cashless limit. JEL categories: E12, B22, B40, E50 1 The scientific illusion of New Keynesian monetary theory Introduction Until very recently many monetary theorists endorsed the ‘scientific’ approach to monetary policy based on microeconomic foundations pioneered by Clarida, Galí and Gertler (1999) and this approach was extended by Woodford (2003) and reasserted by Galí and Gertler (2007) and Galí (2008). Furthermore, Goodfriend (2007) outlined how the ‘consensus’ model of monetary policy based on this scientific approach had received global acceptance. Despite this consensus, the global financial crisis has focussed attention on the state of contemporary monetary theory by raising questions about the theory that justified current policies. Buiter (2008) and Goodhart (2008) are examples of economists who make some telling criticisms. Buiter (2008, p. 31, fn 9) notes that macroeconomists went into the current crisis singularly unprepared as their models could not ask questions about liquidity let alone answer them while Goodhart (2008, p. -
Chapter 33: Aggregate Demand and Aggregate Supply Principles of Economics, 8Th Edition N
Chapter 33: Aggregate Demand and Aggregate Supply Principles of Economics, 8th Edition N. Gregory Mankiw Page 1 1. Introduction a. We now turn to a short term view of fluctuations in the economy. b. This is the chapter that made this book controversial as Mankiw tends to ignore the Keynesian framework contained in most Principles textbooks. c. I personally find that to be a substantial improvement over those earlier books. d. Here we use the aggregate demand-aggregate supply model to explain short term economic fluctuations around the long term trend of the economy. e. On average over the past 50 years, the production of the US economy as measured by real GDP has grown by about 3 percent per year. i. While this has to be adjusted for population growth, one has to wonder why people tend to view their economic position so negatively. ii. Recession is a period of declining real incomes and rising unemployment. P. 702. iii. A depression is a severe recession. P. 702. 2. Three Key Facts about Economic Fluctuations a. Fact 1: Economic fluctuations are irregular and unpredictable i. They are called the business cycle, which can be misleading. ii. Figure 1: A Look at Short-run Economic Fluctuations. P. 703. iii. Every time that you hear depressing economic news–and they are reported often, remember Figure 1(a). iv. The last 25 years has observed steady real growth with only minor reversals. b. Fact 2: Most macroeconomic quantities fluctuate together c. Fact 3: As output falls, unemployment rises 3. Explaining Short Run Economic Fluctuations a. -
Thomas Jordan: What Constitutes Sound Money?
Speech Embargo 8 October 2020, 11.30 am What constitutes sound money? Economic Conference, Progress Foundation Thomas J. Jordan Chairman of the Governing Board∗ Swiss National Bank Zurich, 8 October 2020 © Swiss National Bank, Zurich, 2020 (speech given in German) ∗ The speaker would like to thank Romain Baeriswyl and Peter Kuster for their support in preparing this text. He also thanks Simone Auer, Petra Gerlach, Carlos Lenz, Alexander Perruchoud and the SNB Language Services. Page 1/8 Ladies and gentlemen As the title of today’s event clearly states: supplying the economy with sound money is a constant challenge. I am therefore particularly pleased to have the opportunity to examine the issue of ‘What constitutes sound money?’ with you in more detail here. After all, as Chairman of the Governing Board of the Swiss National Bank, I represent an institution that is responsible for providing our country with sound money, a task we have performed since our foundation 113 years ago. Sound money is crucial in a society that is shaped by the division of labour and the exchange of goods and services – as has been demonstrated not least by the experience gained with a wide range of monetary orders over many centuries. Today, money is used in virtually all economic transactions. A sound monetary system is an essential prerequisite for a modern economy, for efficient trade and for social stability. Given how significant the monetary system is, it is only right and proper that the associated developments are also the subject of regular public debate. With this conference dedicated exclusively to the issue of sound money, you are making an important contribution in this regard. -
Seigniorage Is Profit from Money Creation, a Way for Governments To
Copyrighted Material seigniorage money system, seigniorage revenue is given by the product of the inflation rate and the inflation tax base. This inflation tax base reflects the purchasing power of the public’s money holdings and is the level of real money balances (nominal money holdings divided by the price level). Undertaking more rapid monetary expansion causes the inflation rate to rise, but the revenue effects are partially offset as indi- viduals attempt to quickly spend the extra money before it depreciates further. If people spend money faster thanitis beingprinted, therateof price increase comes to exceed the rate of money issuance. Hyperinflation Agovernmentthatisunableto fund its expenditures through conventional taxes or bond sales may become dependent on seigniorage revenues to maintain its existence. Attempts to raise seigniorage revenues are, however, not only infla- tionary but eventually self-defeating. Under cir- cumstances where the decline in real money balances seigniorage becomes proportionately larger than the rise in the Seigniorage is profit from money creation, a way for inflation rate, the inflationary policy actually back- governments to generate revenue without levying fires and lowers seigniorage revenue. The economist conventional taxes. In the days of commodity Phillip Cagan’s classic analysis of hyperinflations, money, seigniorage revenue was the difference be- with inflation rates exceeding 50 percent per month, tween the face value of the minted coins and the suggested instances where the process had, in fact, actual market value of the precious metal they con- been pushed beyond the revenue-maximizing point. tained. When this markup was insufficient for the It is possible that lags in the adjustment of inflation government’s revenue needs, the authorities might expectations may actually have allowed continued substitute less valuable base metal for some of the seigniorage gains, however, and subsequent analysis precious metal that was supposed to be in the coins. -
Seigniorage Or Sovereignty? L
Seigniorage or Sovereignty? L. Randall Wray, University of Missouri, Kansas City In this chapter, I will explore two competing approaches to analysis of national currency emission. I will call one the seigniorage view, to be contrasted with what I will call the sovereignty view. Before proceeding, let me say that I am not interested in presenting either a historical analysis, nor will I pursue the etymology of these terms. I will first briefly define the terms as I will be using them, and then will identify the views associated with each. I then argue that the view I identify with sovereignty is more useful for understanding operation of most modern national currencies. While much of the discussion will focus on domestic use of the currency, I will also explore issues surrounding an ” open economy„ and foreign currency reserves. Seigniorage Seigniorage is usually defined by reference to a supposed earlier stage in which full- bodied coins were minted by the State. Each coin would contain an amount of precious metal equal in value as a commodity to the coin—s exchange value as well as to the nominal value stamped on the coin. The State—s mint would accept gold for coining, assessing a fee, called a seigniorage charge. So long as that fee exceeded the mint—s costs, the State would receive net revenue from its minting operation… seigniorage revenue. If for example, a gold miner brought a pound of gold to the mint for coining, the State might charge a fee equivalent to one ounce of gold and provide fifteen one-ounce coins. -
Virtual Currencies – Key Definitions and Potential Aml/Cft Risks
FATF REPORT Virtual Currencies Key Definitions and Potential AML/CFT Risks June 2014 FINANCIAL ACTION TASK FORCE The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard. For more information about the FATF, please visit the website: www.fatf-gafi.org © 2014 FATF/OECD. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the FATF Secretariat, 2 rue André Pascal 75775 Paris Cedex 16, France (fax: +33 1 44 30 61 37 or e-mail: [email protected]). Photocredits coverphoto: ©Thinkstock VIRTUAL CURRENCIES – KEY DEFINITIONS AND POTENTIAL AML/CFT RISKS CONTENTS INTRODUCTION ................................................................................................................................... 3 KEY DEFINITIONS: ................................................................................................................................ 3 Virtual Currency .................................................................................................................................... 4 Convertible Versus Non-Convertible Virtual Currency ........................................................................ -
Title a CRITICISM of MONETARISM : with SOME POINTS from THE
Title A CRITICISM OF MONETARISM : WITH SOME POINTS FROM THE JAPANESE EXPERIENCE Sub Title Author BRAGUINSKY, Serguey Publisher Keio Economic Society, Keio University Publication year 1988 Jtitle Keio economic studies Vol.25, No.2 (1988. ) ,p.41- 48 Abstract The paper attempts at unifying the criticism of "classical dichotomy" made by J. A. Schumpeter and J. M. Keynes. Though Schumpeter's vision was that of the developing economy, with money being an important source of that development, while Keynes dealt primarily with an economy in a state of depression, Keynes's criticism is conjectured to presuppose the existence of the Schumpeterian world in the background, because only in this case can money play an active role by linking the past, present, and future. When the situation is that of Schumpeterian "circular flow", there is indeed a case for "classical dichotomy". Examples from the Japanese economy are cited to illustrate the theoretical points. Notes Genre Journal Article URL https://koara.lib.keio.ac.jp/xoonips/modules/xoonips/detail.php?koara_id=AA00260492-1988000 2-0041 慶應義塾大学学術情報リポジトリ(KOARA)に掲載されているコンテンツの著作権は、それぞれの著作者、学会または出版社/発行者に帰属し、その権利は著作権法によって 保護されています。引用にあたっては、著作権法を遵守してご利用ください。 The copyrights of content available on the KeiO Associated Repository of Academic resources (KOARA) belong to the respective authors, academic societies, or publishers/issuers, and these rights are protected by the Japanese Copyright Act. When quoting the content, please follow the Japanese copyright act. Powered by TCPDF (www.tcpdf.org) A CRITICISM OF MONETARISM—WITH SOME POINTS FROM THE JAPANESE EXPERIENCE Serguey BRAGUINSKY* Abstract. The paper attempts at unifying the criticism of "classical dichotomy" made by J. -
Money Demand ECON 40364: Monetary Theory & Policy
Money Demand ECON 40364: Monetary Theory & Policy Eric Sims University of Notre Dame Fall 2018 1 / 37 Readings I Mishkin Ch. 19 2 / 37 Classical Monetary Theory I We have now defined what money is and how the supply of money is set I What determines the demand for money? I How do the demand and supply of money determine the price level, interest rates, and inflation? I We will focus on a framework in which money is neutral and the classical dichotomy holds: real variables (such as output and the real interest rate) are determined independently of nominal variables like money I We can think of such a world as characterizing the \medium" or \long" runs (periods of time measured in several years) I We will soon discuss the \short run" when money is not neutral 3 / 37 Velocity and the Equation of Exchange I Let Yt denote real output in period t, which we can take to be exogenous with respect to the money supply I Pt is the dollar price of output, so Pt Yt is the dollar value of output (i.e. nominal GDP) 1 I is the \price" of money measured in terms of goods Pt I Define velocity as as the average number of times per year that the typical unit of money, Mt , is spent on goods and serves. Denote by Vt I The \equation of exchange" or \quantity equation" is: Mt Vt = Pt Yt I This equation is an identity and defines velocity as the ratio of nominal GDP to the money supply 4 / 37 From Equation of Exchange to Quantity Theory I The quantity equation can be interpreted as a theory of money demand by making assumptions about velocity I Can write: 1 Mt = Pt Yt Vt I Monetarists: velocity is determined primarily by payments technology (e.g.