Financial Stability, Monetarism and the Wicksell Connection
AbstractIn today's discussions of central banking, maintaining macro-financial stability has only recently appeared along-side the pursuit of low inflation as an important policy goal. This is in strong contrast to the earlier literature, where financial stability was often the main concern of the theory of central banking. This theme is explored here first from the point of view of the monetarist tradition, which treated an excess demand for money which the central bank in its capacity as lender of last resort had an obligation to relieve as a central feature of financial crises; and then from that of a later Wicksellian tradition, where co-ordination failures in the inter-temporal allocation of resources that it was monetary policy's task to avoid, were emphasized. Though there are no long-lost sure cures for financial instability awaiting discovery in the older literature, its emphasis on the potential for markets to fail to clear provides a helpful perspective on the phenomenon, often missing from modern models of the conduct of monetary policy.
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Bibliographic InfoPaper provided by University of Western Ontario, Economic Policy Research Institute in its series University of Western Ontario, Economic Policy Research Institute Working Papers with number 20073.
Date of creation: 2007
Date of revision:
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Postal: Economic Policy Research Institute, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/epri_workingpapers.html
financial stability; financial instability; crises; co-ordination failure; lender of last resort; inflation; monetarism; forced saving; Wicksell;
Other versions of this item:
- David Laidler, 2009. "Financial Stability, Monetarism and the Wicksell Connection," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 1(1), pages 60-79, September.
- B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Stockholm School)
- B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-27 (All new papers)
- NEP-CBA-2007-10-27 (Central Banking)
- NEP-HPE-2007-10-27 (History & Philosophy of Economics)
- NEP-MAC-2007-10-27 (Macroeconomics)
- NEP-MON-2007-10-27 (Monetary Economics)
- NEP-PKE-2007-10-27 (Post Keynesian Economics)
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