I have a new article Economic relations, Which discusses the possibility of monetaryism in the 21st century. Unfortunately, the journal could not use my graph, so I would like to discuss an omitted graph that highlights an interesting feature of macroeconomics — the lack of specific principles. Macroeconomics has a tendency to change with the current intellectual fashion.
In the paper, I have discussed three common approaches to financial economics.
1. Old Keynesianism: Funding data is informative and monetary policy is often ineffective.
2. New Keynesian: Funding data is uninformed and monetary policy is highly effective.
3. Monetaryism: Funding data is informative and monetary policy is highly effective.
Old Keynesianism became popular when inflation was so low that nominal interest rates went close to zero. In that environment, one often sees a large increase in the financial base combined with very low inflation (left side of the graph). This leads many to assume that monetary policy is ineffective at the lower limit of zero. Monetarism is the least popular during this period. Keynes General theory In fact there was a special theory for an economy with almost zero inflation expectations.
New Keynesianism is most popular from 1983 to 2007 when inflation was moderate and fairly stable. During this period, there is little correlation between inflation and inflation, mostly because inflation is quite stable. It’s not that money doesn’t matter, but it’s an example of what Milton Friedman said Thermostat problems. If you efficiently adjust a thermostat to keep the temperature at 72 degrees, it seems that the thermostat is not affecting the temperature. New Keynesians still think monetary policy is highly effective, but they focus on interest rates, not money supply.
Monetaryism is most popular during periods of high and volatile inflation such as the 1970s. During this period, there is usually a close relationship between the long-term money growth rate and inflation (right side of the graph). In contrast, interest rates became an unreliable indicator of monetary policy position due to Fisher’s influence.
Personally, I find it a big embarrassment that macroeconomists shift between these models in line with the current inflation trend যেমন as teenagers change their clothing styles every autumn. We need a financial model that adapts to any macroeconomic environment. My choice is market monetaryism, where NGDP futures are both monetary policy indicators and instruments. Where monetary policy is always effective and a policy of financial stability is not required.
I am currently working on a book that will truly sue for a “general theory”, a financial theory that explains the monetary policy of both Japan and Zimbabwe.