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A Small Corner of Intertemporal Public Finance - New Developments in Monetary Economics: 2 Ghosts, 2 Eccentricities, A Fallacy, A Mirage and A Mythos

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  • Willem Buiter

Abstract

Monetary theory and policy are part of intertemporal public finance. The lecture reviews some interesting recent developments. The two ghosts are the venerable liquidity trap and the Pigou effect or real balance effect. The eccentricities are negative nominal interest rates and the helicopter drop of base money - two unconventional policies for stimulating consumer demand even when nominal interest rates, short and long, present and future, are at their zero lower bounds. The fallacy is the so-called Fiscal Theory of the Price Level, a logically in-consistent theory of the link between the government budget and the general price level. The mirage is the prediction that financial deregulation and technical change in the payments and settlements technology (e-money etc.), will cause monetary policy to lose its capacity to influence even nominal economic variables. Mythos refers to the independent central bank.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10524.

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Date of creation: May 2004
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Publication status: published as Buiter, Willem H. "New Developments In Monetary Economics: Two Ghosts, Two Eccentricities, A Fallacy, A Mirage And A Mythos," Economic Journal, 2005, v115(502,Mar), 1-31.
Handle: RePEc:nbr:nberwo:10524

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Cited by:
  1. Harashima, Taiji, 2008. "A Microfounded Mechanism of Observed Substantial Inflation Persistence," MPRA Paper 10668, University Library of Munich, Germany.
  2. Taiji Harashima, 2004. "The Ultimate Source of Inflation: A Microfoundation of the Fiscal Theory of the Price Level," Macroeconomics 0409018, EconWPA, revised 23 Sep 2004.

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