by Tyler Cowen
on January 24, 2013 at 2:39 pm
in Books, Economics |
That is the new eBook by Marcus Nunes and Benjamin Mark Cole, preface by Scott Sumner, and the link to it is here.
Market Monetarism Roadmap to Economic Prosperity [Kindle Edition] –> ridiculous. It’s like if I wrote a book: ‘temperatures, the key to understanding summer and winter seasons’. MV = PQ is just a tautology. Since V varies, it’s meaningless. Not unlike using Black-Scholes to predict anything. Because volatility is so volatile, the B-S equation is largely useless (though widely followed so should not be ignored, especially during normal market volatility).
Of course V varies. Market monetarist believe that M should offset shifts in V to produce a steady PQ.
But as M = F(V) and V = F(M) you have feedback and the whole thing is nonlinear. If monetarism works you’d not have recessions. It reminds me of academic theories of free trade: if indeed it was so advantageous, it would have been done already, not unlike the proverbial $20 bill lying on the pavement that has not been picked up. (BTW I am for free trade).
Britain, indeed much of Europe, for much of the 19th century. Hong Kong since forever.
The last 60 years can be seen as getting back to 1913 trade policies, free-ish, but not completely free, at least for the rich countries, Australia and New Zealand, even.
I have a copy of William Niskanen’s book, Reaganomics, which was published in 1988. In the chapter on Monetary Policy, on page 187, Niskanen comes out for a GDP like rule. Specifically he suggests targeting domestic final sales (GNP less the change in business inventories less exports plus imports). Keep in mind that this was in 1988.
And Hayek suggested it even earlier. He said he preferred a system of that didn’t have monopoly currency but targeting total payment flows (NGDP wasn’t a popular term at the time) was the best you could do with a currency monopoly.
Richard A: Right you are, and we refer to many of the progenittors of Market Monetarism in the book. There was a FOMC board member named Frank Morris talking about NGDP targeting in 1982 at an FOMC meeting, and we quote him.
I think you will find the book a fun read, with loads of charts and historical info.
Hayek yes, for that matter David Hume…..
Accepting that NGDP targeting is the proper monetary target, is there not a role for fiscal policy if the monetary authority fails to meet its target? It seems to me that if for whatever reasons unemployment arises this will automatically shift cost benefit calculations for all sorts of government activities in the direction of greater expenditures/lower taxes during the period of unemployment which would look like discretionary fiscal policy.
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