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The "New Consensus" View of Monetary Policy: A New Wicksellian Connection?

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  • Giuseppe Fontana

Abstract

One of the greatest achievements of the modern "New Consensus" view in macroeconomics is the assertion of a nonquantity theoretic approach to monetary policy. Leading theorists and practitioners of this view have indeed rejected the quantity theory of money, and defended a return to the old Wicksellian idea of eliminating high levels of inflation by adjusting nominal interest rates to changes in the price level. This paper evaluates these recent developments in the theory and practice of monetary policy in terms of two basic questions: 1) What is the monetary policy instrument controlled by the central bank? and 2) Which macroeconomic variables are affected in the short and long run by monetary policy?

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_476.

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Date of creation: Oct 2006
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Handle: RePEc:lev:wrkpap:wp_476

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  1. Arestis, Philip & Mariscal, Iris Biefang-Frisancho, 1998. "Capital shortages and asymmetries in UK unemployment," Structural Change and Economic Dynamics, Elsevier, vol. 9(2), pages 189-204, June.
  2. Philip Arestis & Malcolm Sawyer, 2003. "The Nature and Role of Monetary Policy When Money Is Endogenous," Economics Working Paper Archive wp_374, Levy Economics Institute.
  3. Boianovsky, Mauro & Trautwein, Hans-Michael, 2006. "Wicksell after Woodford," Journal of the History of Economic Thought, Cambridge University Press, vol. 28(02), pages 171-185, June.
  4. Giuseppe Fontana, 2004. "Hicks on monetary theory and history: money as endogenous money," Cambridge Journal of Economics, Oxford University Press, vol. 28(1), pages 73-88, January.
  5. Roberto Tamborini, 2006. "Back to Wicksell? In search of the foundations of practical monetary policy," Department of Economics Working Papers 0602, Department of Economics, University of Trento, Italia.
  6. Tobin, James, 1970. "Money and Income: Post Hoc Ergo Propter Hoc?," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 301-17, May.
  7. Laurence Ball, 1999. "Aggregate demand and Long-Run Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 189-252.
  8. Giuseppe Fontana & Alfonso Palacio-Vera, 2004. "Monetary Policy Uncovered: Theory and Practice," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(1), pages 1-19.
  9. George T. McCandless, Jr. & Warren E. Weber, 1995. "Some monetary facts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
  10. Thomas J. Sargent, 1981. "The ends of four big inflations," Working Papers 158, Federal Reserve Bank of Minneapolis.
  11. Hicks, J. R., 1979. "Critical Essays in Monetary Theory," OUP Catalogue, Oxford University Press, number 9780198284239, September.
  12. Thomas M. Humphrey, 2002. "Knut Wicksell and Gustav Cassel on the cumulative process and the price-stabilizing policy rule," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 59-83.
  13. Lilia Costabile, 2005. "Money, cycles and capital formation: von Mises the "Austrian" vs. Robertson the "Dynamist"," Cambridge Journal of Economics, Oxford University Press, vol. 29(5), pages 685-707, September.
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Cited by:
  1. Eckhard Hein & Christian Schoder, 2011. "Interest rates, distribution and capital accumulation -- A post-Kaleckian perspective on the US and Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 693-723, November.
  2. Kai D. Schmid, 2010. "Medium-run macrodynamics and the consensus view of stabilization policy," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 322/2010, Department of Economics, University of Hohenheim, Germany.

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