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Monetary Economics: A Review Essay

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  • Herschel I. Grossman

Abstract

In this essay I define money to be whatever objects serve as generally acceptable media of exchange and I define monetary economics to be the study of the causes and economic consequences of the monetization of exchange -- that is, of the use of media of exchange. These definitions lead me to specify the distinctive objectives of monetary economics to be to understand (1) the monetization of exchange and its relation to the technologies of production and of exchange, (2) the form that money takes and, especially, the viability of fiat money, (3) the determination and significance of the real value of units of money, and (4) the relation between the nominal quantity of money and aggregate economic activity. The essay tries to acquaint the reader with the contents of the recently published "Handbook of Monetary Economic" as they relate to these objectives of monetary economics and offer some critical thoughts on selected unsettled issues in monetary economics that my reading of the "Handbook" suggested.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3686.

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Date of creation: Apr 1991
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Publication status: published as Journal of Monetary Economics, Vol. 28, No. 2, pp. 323-345, (October 1991).
Handle: RePEc:nbr:nberwo:3686

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  1. Jones, Robert A, 1976. "The Origin and Development of Media of Exchange," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 757-75, August.
  2. Kurz, Mordecai, 1974. "Equilibrium with transaction cost and money in a single market exchange economy," Journal of Economic Theory, Elsevier, vol. 7(4), pages 418-452, April.
  3. Rogoff, Kenneth, 1987. "Reputational constraints on monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 141-181, January.
  4. Michelle R. Garfinkel & Seonghwan Oh, 1990. "When and how much to talk: credibility and flexibility in monetary policy with private information," Working Papers 1990-004, Federal Reserve Bank of St. Louis.
  5. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, vol. 79(1), pages 32-42, March.
  6. Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-71, September.
  7. Flood, Robert P & Garber, Peter M, 1980. "Market Fundamentals versus Price-Level Bubbles: The First Tests," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 745-70, August.
  8. Herschel Grossman & Warren Trepeta, 1981. "Risk Shifting, Statistical Discrimination, and the Stability of Earnings," NBER Chapters, in: Studies in Labor Markets, pages 295-318 National Bureau of Economic Research, Inc.
  9. Kiyotaki, Nobuhiro & Wright, Randall, 1991. "A contribution to the pure theory of money," Journal of Economic Theory, Elsevier, vol. 53(2), pages 215-235, April.
  10. Jo Anna Gray, 1982. "Dynamic instability in rational expectations models: an attempt to clarify," International Finance Discussion Papers 197, Board of Governors of the Federal Reserve System (U.S.).
  11. Maurice Obstfeld & Kenneth Rogoff, 1982. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," NBER Working Papers 0855, National Bureau of Economic Research, Inc.
  12. Casella, Alessandra, 1989. "Testing for rational bubbles with exogenous or endogenous fundamentals : The German hyperinflation once more," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 109-122, July.
  13. Diba, Behzad T. & Grossman, Herschel I., 1988. "Rational inflationary bubbles," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 35-46, January.
  14. Herschel I. Grossman & John B. Van Huyck, 1984. "Seigniorage, Inflation, and Reputation," NBER Working Papers 1505, National Bureau of Economic Research, Inc.
  15. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1985. "The Strategic Bequest Motive," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1045-76, December.
  16. William A. Brock, 1982. "Asset Prices in a Production Economy," NBER Chapters, in: The Economics of Information and Uncertainty, pages 1-46 National Bureau of Economic Research, Inc.
  17. Hart, Oliver, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 109-38, February.
  18. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
  19. Joseph M. Ostroy & Ross M. Starr, 1973. "Money and the Decentralization of Exchange," UCLA Economics Working Papers 041, UCLA Department of Economics.
  20. Herschel I. Grossman, 1988. "The Political Economy of War Debts and Inflation," NBER Working Papers 2743, National Bureau of Economic Research, Inc.
  21. Ostroy, Joseph M, 1973. "The Informational Efficiency of Monetary Exchange," American Economic Review, American Economic Association, vol. 63(4), pages 597-610, September.
  22. King, Robert G. & Plosser, Charles I., 1986. "Money as the mechanism of exchange," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 93-115, January.
  23. Hamilton, James D. & Whiteman, Charles H., 1985. "The observable implications of self-fulfilling expectations," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 353-373, November.
  24. Starrett, David A, 1976. "Social Institutions, Imperfect Information, and the Distribution of Income," The Quarterly Journal of Economics, MIT Press, vol. 90(2), pages 261-84, May.
  25. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  26. Maskin, Eric & Tirole, Jean, 1987. "Correlated equilibria and sunspots," Journal of Economic Theory, Elsevier, vol. 43(2), pages 364-373, December.
  27. Grossman, Herschel I., 1983. "The natural-rate hypothesis, the rational-expectations hypothesis, and the remarkable survival of non-market-clearing assumptions," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 19(1), pages 225-245, January.
  28. Grossman, Herschel I, 1990. "Inflation and Reputation with Generic Policy Preferences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(2), pages 165-77, May.
  29. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  30. O'Connell, Stephen A & Zeldes, Stephen P, 1988. "Rational Ponzi Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 431-50, August.
  31. Bennett T. McCallum, 1988. "The Optimal Inflation Rate in an Overlapping-Generations Economy with Land," NBER Working Papers 1892, National Bureau of Economic Research, Inc.
  32. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  33. Oh, Seonghwan, 1989. "A theory of a generally acceptable medium of exchange and barter," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 101-119, January.
  34. Herschel I. Grossman, 1986. "Rationalité, monnaie et activité," Revue de l'OFCE, Programme National Persée, vol. 15(1), pages 207-216.
  35. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  36. Peter Garber & Steven Weisbrod, 1990. "Banks in the Market for Liquidity," NBER Working Papers 3381, National Bureau of Economic Research, Inc.
  37. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  38. Hamilton, James D, 1986. "On Testing for Self-fulfilling Speculative Price Bubbles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(3), pages 545-52, October.
  39. Calvo, Guillermo A., 1978. "Optimal seigniorage from money creation : An analysis in terms of the optimum balance of payments deficit problem," Journal of Monetary Economics, Elsevier, vol. 4(3), pages 503-517, August.
  40. Hahn, Frank H, 1973. "On Transaction Costs, Inessential Sequence Economies and Money," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 449-61, October.
  41. Townsend, Robert M, 1989. "Currency and Credit in a Private Information Economy," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1323-44, December.
  42. Azariadis, Costas & Guesnerie, Roger, 1986. "Sunspots and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 725-37, October.
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Cited by:
  1. van Ees, Hans & Garretsen, Harry, 1995. "Existence and stability of conventions and institutions in a monetary economy," Journal of Economic Behavior & Organization, Elsevier, vol. 28(2), pages 275-288, October.
  2. George Selgin, 2003. "Adaptive Learning and the Transition to Fiat Money," Economic Journal, Royal Economic Society, vol. 113(484), pages 147-165, January.
  3. Dwight R. Lee, 2001. "The Internet, the Market, and Communication: Don't Ignore the Shoe While Admiring the Shine," Cato Journal, Cato Journal, Cato Institute, vol. 20(3), Fall.

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