Does the Stock of Money Have Any Causal Significance

The Levy Economics Institute of Bard College Working Paper No. 363

20 Pages Posted: 18 Mar 2003

See all articles by Philip Arestis

Philip Arestis

University of Cambridge - Department of Land Economy; Universidad del País Vasco (UPV/EHU)

Malcolm C. Sawyer

Levy Economics Institute

Abstract

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.

Keywords: "new" macroeconomics, stock of money, monetary economics

JEL Classification: E51

Suggested Citation

Arestis, Philip and Sawyer, Malcolm C., Does the Stock of Money Have Any Causal Significance. The Levy Economics Institute of Bard College Working Paper No. 363. Available at SSRN: https://ssrn.com/abstract=371105 or http://dx.doi.org/10.2139/ssrn.371105

Philip Arestis (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Universidad del País Vasco (UPV/EHU)

Barrio Sarriena s/n
Leioa, Bizkaia 48940
Spain

Malcolm C. Sawyer

Levy Economics Institute ( email )

Blithewood
Annandale-on-Hudson, NY 12504-5000
United States
845-758-7700 (Phone)
845-758-1149 (Fax)

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