MONEY, CREDIT, and WAGES IN HYPERINFLATION: POST-WORLD WAR I GERMANY

An important feature of the German hyperinflation is the way in which accelerating monetization of both government and private debt by the Reichsbank fueled the inflation process. The stimulus to private credit demand arising from more rapid adjustment of money wages over this period is often ignored, however. The present empirical results strongly support the importance of wage pressures in augmenting fiscal influences on nominal money growth during 1920–1923. Our findings also suggest that wage claims provided the main conduit through which higher inflationary expectations were accommodated by faster rates of monetary expansion.     

CROSS-COUNTRY ESTIMATES OF THE DEMAND FOR MONEY AND ITS COMPONENTS

The demand for money aggregates (M1, M2) and their components (currency, demand deposits, and time deposits) are estimated using a sample of 103 countries at two time periods. Money demand is found to be affected by age, literacy, industrial development, and political structure, as well as income and inflation. This expanded demand function helps to explain the considerable changes in money demand that have occurred over long periods and the large variation in money demand found across countries. The knowledge thus gained is useful for understanding differences in monetary and taxation policies across countries.     

MONEY DEMAND DURING HYPERINFLATION AND STABILIZATION: BOLIVIA, 1980–1988

This paper examines the demand for money in Bolivia during the 1980s, a decade of extreme instability with annual inflation rates reaching over 20,000 percent, and a subsequent stabilization, with annual rates falling to less than 25 percent and remaining so for more than five years.
Our empirical analysis makes use of error-correction approaches, time-varying-parameter estimation with Kalman filtering, and GARCH models of expected inflation and inflation variance. We find that expected inflation and inflation uncertainty both matter for money demand. Time-varying estimates show that the reaction to monetary disequilibria was significantly faster during hyperinflation.     

THE SWINGS OF U.S. INFLATION AND THE GIBSON PARADOX

In recent business cycles, U.S. inflation has experienced a reduction of volatility and a severe weakening in the correlation to the nominal interest rate (Gibson paradox). We examine these facts in an estimated dynamic stochastic general equilibrium model with money. Our findings point at a flatter New Keynesian Phillips Curve (higher price stickiness) and a lower persistence of markup shocks as the main explanatory factors. In addition, a higher interest‐rate elasticity of money demand, an increasing role of demand‐side shocks, and a less systematic behavior of Fed's monetary policy also account for the recent patterns of U.S. inflation dynamics. (JEL E32, E47)     

2011年：宽松货币政策实施与退出的“滞胀”效应——来自2002～2010年货币存量变动研究的见解

通过对2002～2010年我国货币存量、价格波动与产出增长关系的实证研究,有两个重要的发现：一是一个高的货币存量增长率会带来物价上涨的趋势,而抑制物价上涨的根本之策是降低货币增长率;二是2009～2010年实施的宽松货币政策对产出增长的短期效应开始消褪,而价格则进入了一个上升通道,＂滞胀＂风险已经出现,因而中央银行转向降低通胀的一个明确的货币政策规则应是优选的政策目标。     

ARMEN ALCHIAN'S CONTRIBUTION TO MACROECONOMICS

Armen Alchian's contributions to macroeconomics forged important paths that are still crucial to the understanding of monetary theory and monetary policy. We outline Alchian's examination of the fundamental role of money in society and his work (with Benjamin Klein) on the measurement of inflation. We also detail how, in research with Reuben Kessel, Alchian brought insight into the problems that followed the erratic inflation policies of the 1960s and 1970s, explained the effects of anticipated and unanticipated inflation on the real economy, and described the difficulty of identifying the effects of monetary shocks in macroeconomic data.     

ON INFLATION AND REAL PRICE VARIABILITY

This paper studies the consequences of costly price adjustments for the variability of real prices accompanying inflation. For constant-elasticity demand and cost of production it is shown that a higher demand, a lower cost of production, or a lower cost of price adjustment leads to less intertemporal variability of real prices. If the marginal cost of production does not increase "too" fast, then the average real price is less than the real price that would prevail in the absence of inflation; additionally, a higher demand, a lower cost of production, or a lower cost of price adjustment leads to a higher level of real prices.     

INFLATION, HEDGING AND THE DEMAND FOR MONEY: SOME EMPIRICAL EVIDENCE

This paper explores the role of nominal rate of return uncertainty and inflation hedging as potentially important factors explaining the pattern of money demand. Using U.S. quarterly data over the period 1952.2–1982.4, it is shown that in conformity with theoretical considerations the nominal rate of return uncertainty variable tends to have a significantly positive effect and the inflation hedging variable (the covariance between nominal rate of return and inflation rate) a significantly negative effect on the demand for money. These findings seem to be reasonably robust in terms of various definitions of income, interest rates, inflation rate and money variables as well as in terms of different estimation methods.     

Nominal and Real Disturbances and Money Demand in Chinese Hyperinflation

This article reexamines the dynamics of hyperinflation by allowing variability in the relative price of capital goods in units of consumption goods that reflects interactions between the real and monetary sectors. The theory generates empirically testable implications that suggest expanding the standard Caganian money demand function to include both anticipated inflation and relative price effects in a nonlinear fashion. Employing data from the post–WW II Chinese hyperinflationary episode, the empirical findings suggest that conventional econometric investigations of money demand during hyperinflation overlook important nonlinear interactions between real and monetary activities and, hence, underestimate the welfare costs of hyperinflation.     

A NEW MONETARIST MODEL OF FIAT AND E‐MONEY

We develop a dual payment New Monetarist model, where an electronic money (e‐purse) competes with fiat money (cash). The two payment instruments differ in terms of security, cost, and acceptability. Strategic complementarities lead to multiple monetary equilibria. We establish the conditions under which e‐money can coexist with, or replace fiat money, and explain the reasons for the e‐purse failure/success in a few countries. We also compare welfare when one currency or both circulate. When the risk of theft of cash is endogenous, e‐money cannot replace cash entirely; however, low inflation can facilitate the adoption of e‐money in parallel with fiat money. (JEL D83, E40, E50)     

HEALTH CARE INFLATION AND ITS IMPLICATIONS FOR MONETARY POLICY

Motivated by recent findings on the cyclical movement of both health and health spending, we construct a general equilibrium model that distinguishes health care demand from the demand for other goods. Using this model, we are able to generate inflation dynamics and cyclicality of health that match the US data. When the model is subjected to an expansionary monetary policy shock, it yields different output and inflation responses compared with a two‐sector model with homogeneous demand. We show that the trade‐off between leisure and health spending plays an important role in model dynamics. The model further predicts different degrees of inflation stabilization across sectors when a shift in the monetary policy occurs. (JEL E52, E31, E32, I10)     

THE LONG-RUN LINK BETWEEN MONEY GROWTH AND INFLATION

Is inflation always a monetary phenomenon? Many economists believe that the link between money growth and inflation in the U.S. has weakened over the last two decades due in part to the Federal Reserve's policy experiment in 1979–1982 and innovations in the financial sector of the economy. I find that the long-run relationship between money growth and inflation is strong in a statistical sense and important economically. The key result is that the trend or growth component in CPI inflation is entirely due to the trend component of monetary base growth. (JEL C32, E31, E51)     

An Examination of the Asymmetric Effects of Money Supply Shocks in the Pre–World War I and Interwar Periods

We test whether monetary shocks had asymmetric output effects before World War II. Ball and Mankiw (1994) show that expectations of persistent inflation under fiat money can explain why negative monetary shocks had larger effects than positive shocks after World War II. Consistent with this explanation, we find such asymmetry in the interwar period following the abandonment of the gold standard and before it, when agents arguably anticipated this development. We find no monetary asymmetry before World War I, which is consistent with Ball and Mankiw (1994), because under a credible gold standard, agents do not expect persistent inflation.     

Breaking the taboo: a history of monetary financing in Canada, 1930–1975

Monetary financing – the funding of state expenditure via the creation of new money rather than through taxation or borrowing – has become a taboo policy instrument in advanced economies. It is generally associated with dangerously high inflation and/or war. Relatedly, a key institutional feature of modern independent central banks is that they are not obligated to support government expenditure via money creation. Since the financial crisis of 2007–2008, however, unorthodox monetary policies, in particular quantitative easing, coupled with stagnant growth and high levels of public and private debt have led to questions over the monetary financing taboo. Debates on the topic have so far been mainly theoretical with little attention to the social and political dynamics of historical instances of monetary financing. This paper analyses one of the most significant twentieth‐century cases: Canada from the period after the Great Depression up until the monetarist revolution of the 1970s. The period was a successful one for the Canadian economy, with high growth and employment and manageable inflation. It offers some interesting insights into the relationship between states and central banks and present‐day discussions around the governance of money creation.     

EFFICIENT INFORMATION PROCESSING IN OUTPUT MARKETS: TESTS AND IMPLICATIONS

If goods markets efficiently process information, much of received macro doctrine seems of little relevance. Neither unemployment nor the money stock should be leading indicators of inflation. Countercyclical monetary policy will have little effect on inflation. Restrictive monetary policy can have severe effects on real variables if the public is unconvinced the authorities are committed to reducing inflation. When proper account is taken of mean shifts in the stochastic process generating CPI inflation rates, there is little remaining autocorrelation indicative of inefficiency, and filter rule experiments similarly support the hypothesis of goods market efficiency.     

OUR NEW MONETARY STANDARD: THE MEASUREMENT AND EFFECTS OF PRICE UNCERTAINTY, 1880–1973*

U. S. annual inflation rates over the last century are analyzed in an attempt to compare price unpredictability in the recent period with that during the 1880–1915 gold standard period. The movement from negative price change autocorrelations in the earlier period to strongly positive price change autocorrelations in the recent period, is shown to imply an upward shift in the amount of long-term relative to short-term price uncertainty. Empirical evidence on the relationship between the demand for money and actual price change, on the adjustment of interest rates to price changes and on the change in the composition of new corporate debt issues is presented. Evidence suggests that only over the last decade has the public generally recognized the fundamental change from a commodity to a fiduciary standard that has occurred in the underlying monetary framework.     

Cointegration and Structural Change: An Application to the U.S. Demand for Money

I perform the cointegration tests for the trivariate model of real monetary aggregates, real personal income, and short‐term interest rate. I find the existence of a long‐run relationship among these three variables. To check the stability of a long‐run money demand relationship, I implement a rank constancy test and CUSUM test. The test results show that real M1 is relatively more stable than other aggregates, but structural change occurred during the 1970s and early 1980s. This is consistent with prior research on money demand.     

STICKY PRICE AND STICKY INFORMATION PRICE‐SETTING MODELS: WHAT IS THE DIFFERENCE?

Using a partial equilibrium framework, Mankiw and Reis show that a sticky information model can generate a lagged and gradual inflation response after a monetary policy shock, whereas a sticky price model cannot. Our study demonstrates that the finding is sensitive to their model's parameterization. To determine a plausible parameterization, we specify a general equilibrium model with sticky information. In that model, we find that inflation peaks only one period after a monetary disturbance. A sensitivity analysis of our results reveals that the inflation peak is delayed by including real rigidities when the monetary policy instrument is money growth, whereas inflation peaks immediately when the policy instrument is the nominal interest rate. ( JEL E31, E32, E52)     

Perceived risk and the precautionary demand for money

Keynes contended that individuals hold money for fear of being unable to meet unforeseen future cash requirements. This ‘precautionary demand’ for money has long been an accepted part of monetary theory, but has played a subservient role because of our inability to measure an individual's degree of aversion to risk. This study, however, employs a risk taking scale, similar to that developed by Zuckerman, to empirically investigate Keynes's precautionary demand for money. The results are sufficiently encouraging to suggest that this scale might successfully be applied to other economics subfields in which risk plays a role.     

THE COMPOSITION AND CONSTRUCTION OF MONETARY AGGREGATES

An economic monetary aggregate is composed from a set of monetary goods that are at least weakly separable from other goods in the optimizing agent's utility function. We construct such an aggregate using a Divisia index number. We demonstrate that through the middle of the 1980s forecasts of the inflation rate based on our economic monetary aggregate are superior to forecasts based on the simple sum monetary aggregates M1 or M2.