The (quantity) theory of money and credit

The Theory of Money and Credit (1912) is rightly regarded as a seminal book in the development of the Austrian school approach to monetary theory. We argue that Mises’ understanding of the equation of exchange differs from both of the conventional textbook versions, and warrants recognition as being a distinct contribution. After supporting this claim we discuss it in light of expectations, monetary regimes, and the microfoundations of the quantity theory.     

The long-run and short-run demand for money: Additional evidence

This paper presents estimates of Chow's money-demand equations using Chow's data. The equations are adjusted for autocorrelation using two autocorrelation transformations, the standard Cochrane-Orcutt transformation that deletes “initial” observations, and one that does not delete these observations. The estimates focus on the question of the asset versus the transactions specifications. The results reaffirm Chow's original conclusion which supported the asset motive and, thereby, reversed nearly all of the findings recently reported by Lieberman (1980). The paper concludes that one should be wary about using the Cochrane-Orcutt transformation, especially when the ratio of the number of deleted observations to total observations is large.     

A test of Allais' version of the quantity theory of money

Journal of Economics -     

On the short-run and long-run demand for money

This paper makes precise the relationships between short-run and long-run demand for money, using methods commonly employed in growth models. It estimates these demand functions with quarterly French data and tests the validity in France of the modern version of the quantity theory of money. The effects of inflation on the demand for money are studied both in the short run and the long run. The speed of adjustment of money balances towards their long-run level is measured.     

The optimal quantity of money: A reconciliation

Despite the apparent disagreement of Samuelson's (1958) overlapping generations model and Townsend's (1980) turnpike model on the optimal quantity of money, in both: (i) those endowed at the start with goods prefer a constant money stock, and (ii) those endowed at the start with fiat money prefer deflation.     

Some further evidence on the long-run neutrality of money

A recently developed reduced-form test for long-run neutrality is applied to twentieth-century Australian data on real output and the nominal money stock. The results show that narrowly defined money is neutral. However, real output is not invariant in the long run to a broader-based measure of the money stock.     

The tax-foundation theory of fiat money

Throughout modern history governments have tried to promote the general acceptance of their unbacked paper currencies. One of the most common devices has been legal tender laws that have assured the acceptance of these currencies as tax payments. Economic theory has largely ignored this mechanism, except for the static models of Starr (Econometrica 42:45?C54, 1974; Econ Theory 21:455?C474, 2003). I provide the first dynamic model of this mechanism, thus showing explicitly the medium of exchange role of money, accounting for expectations about the government??s survival, and enabling more realistic taxation systems. I show that a stable government can promote its currency by refusing to accept other objects in tax payments. While this mechanism has similarities to convertibility, it differs from it on a critical aspect: with this mechanism the government can often keep its favorite money in circulation even while increasing its quantity and thus causing it to decrease in value. This opens the door for a successful inflationary policy.     

Stock prices and long-run demand for money: evidence from Malaysia

This paper investigates the money demand function for Malaysia in the 1971-1996 period using the multivariate cointegration and error correction model methodology. The results suggest that a stable long-run relationship exist between real M2, the interest rate differential, income and stock prices. Stock prices have a significant negative substitute effect on long-run as well as short-run broad-money demand (M2) and its omission can lead to serious misspecification in the money demand function. The analysis from the vector error correction model (VECM) and the Toda & Yamamoto (1995) causality tests find that money is endogenous and that there is at least a unidirectional relationship between stock prices and real M2. Stock prices Granger cause real M2 indirectly through income between interest rates and stock prices and stock prices and money stock. This paper comes to the conclusion that due to the endogeneity of money, M2 cannot be completely controlled by Malaysia's central bank. Therefore, in formulating future monetary policy, the response of money demand to stock prices should be considered.     

Social status,human capital formation and the long-run effects of money

This study examines the effects of monetary policy in a two-sector cash-in-advance economy of human capital accumulation. Agents concern about their social status represented by the relative physical capital and relative human capital. We find that if the desire for social status depends only on relative physical capital, money is superneutral in the growth-rate sense. However, if the desire for social status depends on relative human capital, the money growth rate will have a positive effect on the long-run economic growth rate. Furthermore, an increase in the desire to pursue human capital will raise the long-run growth rate, but an increase in the desire to pursue physical capital will lower it.     

The theory of fiat money and private money as alternative media of exchange

A random-matching model with a clearinghouse is constructed to investigate the impact of private money on economic efficiency and social welfare in three monetary regimes. A subset of agents, called bankers, whose credit histories are recorded by the clearinghouse, are allowed to issue private banknotes in order to consume. Those private liabilities may serve as media of exchange, either by themselves, or alongside a stock of fiat money. Under certain conditions, welfare in a monetary steady state with private money is strictly higher than that attained in a steady state where private money is prohibited.     

Short-time work—Some long-run implications

This paper outlines a simple model to examine some long-run implications of short-time work schemes (STWs) on labor market performance and welfare. It is not clear that STWs reduce unemployment as the induced wage push discourages job creation.     

The stability of long-run money demand in the United States: A new approach

In this paper, we search for cointegration relation and determine the location of the changes in the long-run money demand in the US. We use the same data set as the previous studies and find that there are two regime changes.     

The theory of economic price and quantity indicators

Summary. This paper develops the theory of economic price and quantity indicators, being the difference analogue of indexes. The properties of indicators and indexes are compared. Observable bounds for the indicators will be derived, as well as two exactness results for Bennet (1920)-type price and quantity indicators.Received: 3 January 2002, Revised: 2 December 2002, JEL Classification Numbers: C43Previous versions of this paper were presented at the Economic Measurement Group Workshop 2001, School of Economics, University of New South Wales, Sydney, 30 March 2001, and at a seminar at the School of Economics, University of New England, Armidale NSW, 7 September 2001. The authors thank Erwin Diewert for helpful comments on a previous version. The views expressed in this paper do not necessarily reflect any policy of Statistics Netherlands.     

David Hume and Irving Fisher on the quantity theory of money in the long run and the short run

The Modern variant of internationalization of Swedish economics began at the end of the nineteenth century will Wicksell as the first clearly international economist. By that time foreign influences came especially from the German-language area. We concentrate, however, on the period after the Second World war. Our statistics is based oninter alia, the Scandinagian Journal of Economics. English has gradually become the most important language in citations and Swedish dissertations. American influences have become large, and the Swedish ideal of research is very similar to the American one. The evolution is, however, not unequivocal.     

The analytical preconditions for Keynes' theory of money

Evaluating Keynes' belief that the "general theory" would create a revolution in economics, depends, in part, on what defines the key elements of the general theory. This paper presents the analytical preconditions for one of these key elements, his liquidity preference theory of money. It is argued here that Keynes's liquidity preference theory of money was both a result of his own intellectual development and a theoretical necessity, given the rest of the theoretical structure of the general theory. Specifically, this paper argues that there were two analytical preconditions for the theory of money contained in the general theory. The first was Keynes' rejection of the quantity theory of money as the basis for conducting monetary policy, a theory he inherited from his English predecessors and he himself had embraced and to which he contributed earlier in his professional career. The second was his rejection of the neoclassical loanable funds theory of interest rate determination. A previous version of this paper was presented at the Forty-Sixth International Atlantic Economic Conference, Boston, MA, October 8–11, 1998.     

Hicks on monetary theory and history: money as endogenous money

Hicks was never tired of saying that monetary theory is in history.What he meant was that monetary theory is intrinsically relatedto real events, and more importantly that monetary issues needto be analysed in a dynamic sequential context in which timeplays an essential part. He went on developing a particularsequential analysis: the study of what happens within a singleperiod (‘single-period theory’) and the study ofthe linkages between a succession of those periods (‘continuationtheory’). It is suggested that this distinction providesa useful lesson for modern endogenous money theorists.     

Uncertainty and the theory of international trade in long-run equilibrium

We consider a country with two factors and two industries, each of which faces technical and price uncertainty. Entrepreneurs choose outputs in order to maximize the expected utility of profits. They also draw factor payments and purchase consumption goods after the uncertainty isresolved. They enter and exit from an industry according to whether participation there increases their expected utility. Within this model, the validity of the propositions of neoclassical trade theory depends on how the entrepreneurs' entry decisions are affected by parameter changes via their roles as risk bearers, consumers and factor owners.