Does the Stock of Money have any Causal Significance
University of Cambridge - Department of Land Economy
Malcolm C. Sawyer
Levy Economics Institute; University of Leeds - Leeds University Business School (LUBS)
The Levy Economics Institute of Bard College Working Paper No. 363
Recent developments in macroeconomics, and in economic policy in general, have produced a "new consensus" economy-wide model, in which the stock of money does not play any causal role, but operates as a mere residual in the economic process. The absence of the stock of money in many current debates over monetary policy has prompted the deputy governor of the Bank of England to note the irony of the situation: As central banks became more and more concerned with price stability, less and less attention is paid to money. Indeed in several countries, the decline of interest in money appears to have coincided with low inflation. In turn, a number of contributions have attempted, wittingly or unwittingly, to "reinstate" a more substantial role for money in this "new" macroeconomics. In this paper we argue that these attempts to "reinstate" money in current macroeconomic thinking entail two important problems. First, they contradict an important theoretical property of the new "consensus" macroeconomic model, namely, that of dichotomy between the monetary and the real sector. Second, some of these attempts either fail in terms of their objective or merely reintroduce the problem rather than solve it. We conclude that if money is to be given a causal role in the "new" consensus model, more substantial research is needed.
Number of Pages in PDF File: 20
Keywords: "new" macroeconomics, stock of money, monetary economics
JEL Classification: E51working papers series
Date posted: March 18, 2003
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 1.828 seconds