"Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation."
This topic covers the ideas of Milton Friedman and other monetarist economists. It discusses their contributions to economic thought and their ideas about the role of the money supply and central banks in the economy.
The Quantity Theory of Money: The Quantity Theory of Money in Political science and Monetarism posits that there is a direct relationship between the quantity of money in an economy and the level of prices, assuming all other factors remain constant.
The Phillips Curve: The Phillips Curve is an economic concept that illustrates the relationship between inflation and unemployment rates, suggesting that as unemployment decreases, inflation rises, and vice versa.
The Role of Central Banks: The role of central banks in Political science and Monetarism refers to their function as independent institutions responsible for monetary policy, controlling the money supply, managing inflation, and fostering financial stability within an economy.
Dynamic Stochastic General Equilibrium Models: Dynamic Stochastic General Equilibrium (DSGE) models are computational models used in monetary economics that aim to understand the fluctuations in macroeconomic variables by capturing the interactions of multiple variables over time, incorporating randomness and examining how shocks affect the economy.
Rational Expectations: Rational expectations in political science and monetarism refer to the theory that individuals form their expectations about future economic conditions based on all the available information, including past events and government policies.
The Taylor Rule: The Taylor Rule is a monetary policy guideline that suggests setting interest rates based on prevailing inflation and economic output levels.
Seigniorage: Seigniorage refers to the profit generated by a government through the production and circulation of money.
Inflation Targeting: Inflation targeting is a monetary policy strategy that focuses on achieving and maintaining a specific inflation rate within a predetermined target range set by the central bank.
The Quantity Theory of Credit: The Quantity Theory of Credit states that changes in the supply of credit have significant effects on the overall level of economic activity and inflation.
The Lucas Critique: The Lucas Critique is a principle in political science and Monetarism that argues any economic policy should consider the effect of individuals' rational expectations and anticipate how they may change their behavior in response to policy changes.
Liquidity Traps: Liquidity traps are situations in which monetary policy becomes ineffective due to very low interest rates and a lack of demand for credit, resulting in stagnant economic growth and deflationary pressures.
Friedman's Permanent Income Hypothesis: Friedman's Permanent Income Hypothesis suggests that individuals base their consumption decisions not only on current income but also on their expected long-term average income.
Velocity of Money: Velocity of money refers to the rate at which money circulates through an economy, indicating the frequency of its use in transactions.
Nominal and Real Interest Rates: Nominal and real interest rates are two measures used in the field of political science and monetarism to understand the impact of inflation on the borrowing and lending of money.
Capital Controls: Capital controls refer to government-imposed restrictions or regulations on the flow of capital, including foreign investments and financial transactions, in order to manage the stability and functioning of a country's economy.
Monetarist Theory of Economic Growth: Monetarist Theory of Economic Growth posits that stable and predictable monetary policies, including controlled inflation rates and a focus on the money supply, are key drivers of long-term economic growth and prosperity.
Asset Price Inflation: Asset price inflation refers to the sustained increase in the prices of financial assets such as stocks, real estate, or bonds beyond their fundamental value due to economic or monetary factors.
Currency Wars: Currency wars refers to the competitive devaluation of currencies by nations in order to boost their economic competitiveness in the global market.
The Gold Standard: The gold standard refers to a monetary system where a country's currency is pegged to a fixed amount of gold, determining its value and limiting the government's ability to manipulate the money supply.
The Quantity Theory of Taxation: The Quantity Theory of Taxation in political science and monetarism states that government revenue increases proportionally with increases in the quantity of taxes levied.
Classical Monetarism: This is the original version of monetarism developed by Milton Friedman. It focuses on the relationship between the money supply and inflation rate, and advocates for government intervention in the economy through monetary policy. It emphasizes a strict adherence to the quantity theory of money, which asserts that changes in the money supply directly affect prices in the long run, and a preference for a laissez-faire approach to macroeconomic management.
New Classical Monetarism: This is a more recent variation of classical monetarism developed by macroeconomic theorists like Robert Lucas Jr. and Thomas Sargent. It stresses the importance of rational expectations and adaptive behaviors of economic agents in analyzing the effects of monetary policy. It adheres more closely to the idea that economic agents are rational, optimizing creatures and that markets are efficient.
Neo-Monetarism: This is another version of monetarism developed by monetarists like Karl Brunner and Allan Meltzer. It adopts a more flexible approach to monetary policies than classical monetarism, advocating for a gradual and gradualist approach to monetary policy. Neo-monetarists emphasize the importance of monetary aggregates in measuring the amount of money in the economy and argue that controlling the supply of money is the key to managing prices and output.
Supply-Side Monetarism: This is a monetarist trend that focuses on the supply-side of the economy rather than the demand side. Supply-side monetarists advocate for reducing government regulations and lower tax rates to stimulate economic growth rather than relying on monetary policy alone.
Market Monetarism: This is a relatively new school of monetarism that emphasizes the use of market-based solutions to economic problems. It includes economists like Scott Sumner and David Beckworth. Market monetarists advocate for a nominal GDP level targeting framework as opposed to inflation targeting framework that traditional monetarists favor.
Post-Keynesian Monetarism: This is a version of monetarism that adopts some insights from Keynesian economics but retains a focus on money supply and aggregate demand. Post-Keynesian monetarists criticize the use of monetary policy alone to stabilize the economy, arguing that it should be combined with fiscal policy. They also underline the importance of income distribution, equity, and social justice in the economy.
"Monetarist theory asserts that variations in the money supply have major influences on national output in the short run."
"Monetarist theory asserts that variations in the money supply have major influences [...] on price levels over longer periods."
"Monetarists assert that the objectives of monetary policy are best met by targeting the growth rate of the money supply rather than by engaging in discretionary monetary policy."
"Monetarism is commonly associated with neoliberalism."
"Monetarism today is mainly associated with the work of Milton Friedman."
"Friedman and Anna Schwartz wrote an influential book and argued 'inflation is always and everywhere a monetary phenomenon'."
"Though he opposed the existence of the Federal Reserve, Friedman advocated, given its existence..."
"Friedman advocated a central bank policy aimed at keeping the growth of the money supply at a rate commensurate with the growth in productivity and demand for goods."
"A Monetary History of the United States, 1867–1960"
"...who was among the generation of economists to reject Keynesian economics and criticize Keynes's theory of fighting economic downturns using fiscal policy (government spending)."
"...emphasis on the role of governments in controlling the amount of money in circulation."
"'Inflation is always and everywhere a monetary phenomenon'."
"The objectives of monetary policy are best met by targeting the growth rate of the money supply rather than engaging in discretionary monetary policy."
"Monetarism is commonly associated with neoliberalism."
"...wrote an influential book, A Monetary History of the United States, 1867–1960..."
"Monetarists assert that variations in the money supply have major influences on [...] price levels over longer periods."
"Though he opposed the existence of the Federal Reserve, Friedman advocated, given its existence..."
"Monetarists assert that the objectives of monetary policy are best met by targeting the growth rate of the money supply..."
"Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation."