2012년 5월 5일 토요일

메모: 통화주의

자료 1: 구글도서

제목 Macroeconomic Essentials: Understanding Economics in the News / 저자 Peter Kennedy / 에디션 2 / 발행인 MIT Press, 2000

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Chapter 9. Monetarist Rule

The purpose of this chapter is to examine the monetarist approach to macroeconomic analysis and discuss a major legacy of monetarism: the monetarist rule that the money supply should grow at a fixed rate equal to the real rate of income growth of the economy.

By the early 1960s, the Keynesian view of the macroeconomy had become the conventional wisdom, evidence of which was its explicit use as the rationale for the tax cut. Just as the Keynesian view was reaching the peak of its popularity, however, in 1963 Milton Friedman and Anna Schwartz published their book ^A Monetary History of the United States, 1867-1960^, heralding the arrival of a competing view of the macroeconomy that has since come to be known as ^monetarism^.

Monetarists deplored the way in which disciples of Keynes neglected the role of money, something that Keynes himself had stressed, and placed money at center stage of the macroeconomy, the position it had held in the classical view(..), which was the conventional wisdom before Keynesian revolution. In the late 1960s and early 1970s, the monetarist view gained considerable popularity, primarily because during this time the money supply increased dramatically, causing monetarist predictions to be more accurate than those of the Keynesians. Monetarists claim that crowding-out forces are so strong that fiscal actions are completely ineffective, and that only money matters in determining the level of economic activity. Keynesians soon came to agree that money matters and modified their thinking to develop a more eclectic approach. Monetarists, however, insisted that ^only^ money matters. This dogmatism, at first very effective as an attention-getting debating tactic, has ultimately been a main reason for the decline of monetarism, as it became evident that several factors in addtion to money play roles in the operation of the macroeconomy.

9.1. The Quantity Theory

In the classical school of thought, supplanted eventually by keynesianism, a prominent role was played by the ^quantity theory of money^, represented by the mechanical formula

Mv = PQ

Here, P is the overall price level, and Q is the physical quantity of output produced, so that the right-hand side of this formula is the money value of output, or, equivalently nominal GDP. The variable M is the money supply, and v is the velocity of money, interpreted as the number of times in a year each dollar of money supply is used to buy a final good or service. This is usually expressed as the number of times the money supply "turns over" in supporting financially the production of output.

According to this formular, if velocity is constant, a rise in M causes a rise in either P or Q, depending on whether or not the economy is at full employment. This result is easily seen from looking at the formula Mv = PQ. Clearly, the role of money is center stage in determining the level of economic activity. What is not easily seen is what is going on in the economy to cause this result to hold, the greatest drawback of the quantity theory: it offers no explanation of how an increase in the money supply causes an increase in economic activity. The quantity theory formula seems to appear as gospel without any theoretical justification. Indeed, velocity is ^defined^ as the ratio of income to the money supply, making the quantity theory formula a mere tautology. (Take the equation and solve it for v, obtaining v = PQ/M. If this is how v is defined, then the quantity equation becomes true by a defintion--a tautology!)

The monetarists reinterprete the quantity theory as representing an economy's demand for money, and with this reinterpretation they were able to structure an explantion for how an increase in the money supply caused an increase in economic activity. The result is referred to asn the ^modern quantity theory of money^, and it is a cornerstone of monetarism.

9.2. Modern Quantity Theory

The original quantity theory formular is written as M = (1/v)PQ and is interpredted as a behaviral equation that reflects the economy's demand for money--as nominal income PQ increases, our demand for money increases. Individuals and firms demand money for the convenience it provides as a medium of exchange and a store of valye. Individuals' money holdings increase and decrease as their bank accounts are augmented by paychecks and as they spend money between paychecks. Firms' money holdings increase as they receive payment for goods and services and as they pay out wages. How much money(cash and balances in bank accounts) do we collectively want to hold on average? This average is the economy's demand for money.

Essentially, the modern interpretation of the quantity theory of money equation says that the demand for money is higher when the level of nominal income is higher. Higher consumption spending associated with a higher level of income should cause individuals to hold more cash in their pockets and larger bank balances to facilitate this higher consumption spending. ( ... ) In general, as income/output increases producers require more money to support financially the higher level of production, and consumers require more money to facilitate their higher level of consumption. In this new interpretation, the parameter 1/v is not determined tautologically from the definition of velocity, but rather is viewed as reflecting the economy's money-demand behavior. Economists consider velocity v to be a function of other forces in the economy, such as the interest rate, but is thought nonetheless to be quite stable.

How is this new interpretation of the quantity theory used to explain the reaction of the economy to an increase in the money supply? If the money supply increases, people find themselves holding more of their wealth in the form of money than they really want to hold in the form of money: the supply of money exceeds the demand for money. People are assumed to react by spending these excess cash balances in an effort to draw them down. This desire to spend increases aggregate demand for goods and services and sets in motion the traditional Keynesian multiplier process. Initially, people's effort to rid themselves of excess cash balances are unsuccessful because by spending these balances they are simply giving the excess balances to others, not eliminating them. As this process continues, however, the level of income rises, causing an increase in the demand for money. This reduces the excess cash balances and slows down the multiplier process. Eventually, income increases to the point at which the rise in demand for money exactly equals the original increase in the supply of money, stoping this multiplier process.


This story is sometimes told using hot potato analogy. Suppose the extra money takes the form of a hot potato, which no body wants to hold because everyone currently has all the potato(money) they want to hold. Whoever has the hot potato want to get rid of it and does so by using it to buy something from neighboring merchant. This merchant now has the hot potato, but doesn't want it, so does the same thing--namely, gets rid of it by buyng something from anoter merchant. This merchant does the same thing, and so on. As this process continues, the merchants notice that business has improved and that their income is higher. They require more money to lubricate a larger business and to facilitate their own higher consumption spending, so they say to themselves, "The next time that hot potato come around I will slice a bit off to augment my potato (money) holdings," and they do so. Over time, the hot potato (excess money supply) gets whittled away to nothing.

This process is illustrated in figure 9.1. In the numerical example, there is a money-supply increase of $6 billion, brought about by open-market bond purchases of $2 billion. We have assumed that the money multiplier is 3, that "the" multiplier is 2, and that a dollar increase in income increases money demand by $0.2

The multiplier process causes the original increase in the money supply to lead ultimately to a "multiplied" increase in the level of income. The strength of monetary policy is usually measured by the ^income multiplier with respect to the money supply: the increase in equilibrium income due to a unit increase in the money supply^. In the numerical example in figure 9.1, the $6 billion increase in the money supply leads eventually to an increase in income of $30 billion, so the income multiplier with respect to the money supply is 30/6 = 5. This mul- (... ... ...)

(...) The long-run qualification attached to this rule of thumb is important. In the short run, we could be in recession, so that money-supply increases can elicit output increases rather than price increases. Several other short-run factors can play a role in influencing price increases. most notably aggregate demand shocks, energy price increases, and generaous wage settlements. The rule of thumb says that although these other factors can influence prices, they will not create sustained price increases unless they are supplemented with money-supply increases. This is the basis for monetarists claim that ^in the long run inflatin is always and everywhere a monetary phenomenon.^

(...) Two implications of the inflation equation are that (1) an economy does not experience inflation if its money supply increases at a rate equal to the real rate of growth of the economy, and (2) an economy will experience a low, steady inflation in the long run if its money supply grows at a low, steady rate. This is part of the rationale behind the monetarists' belief that (... ...)


(...) the monetary authorities should be replaced by a robot programmed to increase the money supply at a low, constant rate--a controversial prescription known as the ^monetarist rule.^

9.4. The Rules-versus-Discretion Debate


(...)



자료 2: 구글도서

제목 Macroeconomics, 3E / 저자 Dwivedi / 에디션 3 / 발행인 Tata McGraw-Hill Education, 2010

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Chapter 20. Post-Keynesian Macroeconomics

(...) The post-keynesian schools of thought discussed here include:

(a) the modern monetarism
(b) the new classical macroeconomics or radicalism, and
(3) supply-side economics

(...)

20.1. The Modern Monetarism: A Counter-Revolution

The modern monetarism has its roots in the ^classical monetary theory^. The classical economists held the view that monetary policy was the most powerful tool of achieving economic growth and full employment. This view is called 'classical monetarism.' The classica monetarism was formalised in the classical quantity theory of money as developed by Irving Fisher and later by the Cambridge economists. (...Keynesian revolution...) The classical monetary theory had gone into oblivion during this period. (...) Before we take up the main theme of the modern monetarism, let us look at the conditions that led to the advent of modern monetarism.

20.1.1. The Advent of Modern Monetarism

It was Milton Friedman who revived the classical quantity theory of money. Milton Friedman, a Nobel Laureate, and his associate Anna Schwartz carried out in 1950s a monumental study of the monetary history of the U.S.[2] In their study, they found, contrary to the Keynesian orthodoxy, a strong relationship between economic fluctuations and money supply.[3] Most further evidence collected by the monetarists confirmed a strong link between money supply, GNP and other price behaviour. In Friedman's own words, "Long-periods changes in the quantity of money relative to output determine the secular behaviour of prices. Substantial expansions in the quantity of money over short periods have been a major ^proxmate^ source for the accompanying inflation in prices."[4] Friedman is more dogmatic on the relationship between price rise and money supply. He says, "Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."[5]

Monetarists believe that "only money matters." In support of their views, Friedman and other monetarists have produced a tremendous amount of empirical evidence.[6] The modern monetarism received so extensive support during 1970s and 1980s that it is considered as a ^counter-revolution--counter to the Keynesian revolution. The monetarism had gained widespread popularity and was the basis of economic stabilisation policy in the late 1970s in many developed countries. 

The essence of modern monetarism can be stated as follows.

  1. The supply of money plays the dominant role in determining the level of nominal GNP in the short run and price level in the long run. More precisely, an increase in money supply increases the nominal GNP in the short run and prices in the long run.
  2. Fluctuation in money supply is the main factor causing fluctuation in the nominal GNP and in the price level.
  3. Economic fluctuations are primarily the result of wrong fiscal policies of the government. The corrective and stabilisation policy should be based primarily on the monetary measures.
Monetarist Postulates. The views and thoughts of the modern monetarism, mentioned above, are based on the following postulates:

  • a) demand for money is completely ^insensitive^ to interest rates;
  • b) velocity of money (V = PQ/M) remains fairly stable (nearly constant) and predictable;
  • c) prices and wages are relatively flexible;
  • d) free and uninterrupted market forces provide final solution to all economic problems;
  • e) ...
  • f) ...

Based on their postulates, the monetarists that money supply works through interest rate and portfolio adjustments by the wealth-holders and finally affects the output and prices. As regards the causation process, they argued that ^increase in money supply reduces the rate of interest and fal in the interest rate ^increases investment, resulting, finally, into increase in output^. According to monetarists, in the initial stage of this transmissin process, both prices and output increase but nominal output increases at a rate higher than the price rise. Consequently, in the short run, real income icreases. However, if the authorities continue to increase money supply, output does not keep pace with the rising money supply in the long run. Therefore, in the long run, prices rise at a higer pace than the output leading to inflation. The price rise may notnecessarily be infationary.

20.1.2. A Critique of Monetarist Evidence and Postulates.

Nicholar Kaldor, a stauch Keynesian, and James Tobin, a modern Keynesian, criticized modern monetarism strongly. These economists used and analyzed the monetary data collected and used by the monetarists themselves including Milton and Schwartz,[7], and arrived at conclusions contrary to monetarist view. The argued that money supply is, for all practical purposes, endogenous to the system--it increases during the boom period and decreases during recession. No wonder, therefore, that there is high correlation between money supply and output. But, high correlatio does not mean that there is cause-and-effect relationship between money supply and output, i.e., it does mean that increase in money supply causes increase in output. Kaldor argued instead that there is reverse causation between boom and money supply. In his view, if the central bank does not increase money supply during the boom period, "a complete and surrogate money-system[8] and payments-system would be established, which will exist side by side with official money."[9] James Tobin[10] argued that the monetarists' postulate of a direct link between money supply and output does not hold in short-run recessions because businessmen take time to adjust their short-run demand for cash which they need for wage payments and retail transactions. However, neither Kaldorian argument nor Tobin's criticism has been found to be strong enough to challenge the monetarists' view. In fact, there has been a prolonged debate on the validity of Keynesian and monetarist views. The argumets of both sides are discussed briefly in the following section.

20.2. The Keynesian vs. Monetarist Debate: Does Money Matter?


The emergence of monetarism as a counter-revolution led to a prolonged, though inconclusive, debate between the Keynesians and the monetarists. While Keynesians hold the view that the level of output and prices is determined ^mainly^ by the effective demand, monetarists hold the view that the quantity of money is the prime factor that determines the level of output and prices. The debate finally zeroes in on a specific question: 'Does money matter' in determining output and prices? Keynsians argue that 'money does not matter' in determining the aggregate demand, whereas extreme monetarists hold the view that 'only money matters.' We discuss here briefly the arguments of the monetarists and the Keynesians put forward in support of their views.

20.2.1. The Monetarist View: Only Money Matters

The monetarist view that 'only money matters' is based on Friedman's restatement of the quantity theory of money, i.e., MV=PY (...). Friedman considers this equation as the theory of nominal income. Friedman concluded from this equation that 'money is all that matters for changes in nominal income and for short run changes in real income.'[11] This point is central to the monetarism.

This monetarist view is illustrated in the IS-LM framework in Fig. 20-1 and compared with the Keynesian IS and LM curves. The IS and LM curves conforming to the monetarists' view are drawn on the basis of the following assumptions: (i) the ^interest elasticity^ of demand for money is quite low, close to zero; and (ii) the aggregate demand is highly sensitive to the interest rate.

In Fig. 20.1, IS_M and LM_M curves represent monetarist's IS and LM curves and IS_K and LM_K curves represent Keynesian IS and LM curves. Note that monetarists' IS and LM curves are different from the Keynesian IS and LM curves. (... ...)


20.3. The Reconciliation of Keynesian And Monetatist Controversy

(...)

20.3.1. The Source of Controversy: The Elasticity of the LM Curve

The source of controversy is the assumption that fiscalists and monetarists make in respect of the elasticity of the LM curve--there is not much controvery on the IS schedule. The fiscalists assume a ususal Keynesian liquidity preference curve with its ^liquidity trap^ portion. That is, they assume that the speculative demand for money is interest-elastic(0 < e < ∞) up to a certain minimum[16] rate of interest and it is perfectly elastic(e = ∞) below that minimum rate of interest. This assumption results in an LM curve with a unique feature as shown in Fig. 20.5. (For its derivation, see Chapter 16, Fig. 16.2). The LM curve based on the fiscalist assumption is represented by i_0 to the B part of the LM curve including 'pure Keynesian' and 'intermediate' ranges as shown in Fig. 20.5.

On the other hand, the monetarists go by the classical proposition that money is demanded only for transaction purpose and ^transaction demand for money is interest-inelastic^. This proposition produces a vertical LM curve. The LM curve based on monetarist assumption is represented by the vertical part of the LM curve, i.e., point B upward, in Fig. 20.5.

(...)


CF. http://www.unc.edu/depts/econ/byrns_web/PrinEcon/PrinText/CE38.pdf

CF. http://henryckliu.com/page167.html

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