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The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face Facts

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  • C. A. E. GOODHART

Abstract

Lionel Robbins was concerned about the methodology of economic science. When he discussed the relationship between theory and 'reality', two of the examples of inappropriate relationships were taken from monetary economics. Such shortcomings continue. Among the worst are:(1) IS/LM: whereby the monetary authorities set the monetary base, and the interest rate is market determined;(2) the monetary base multiplier of bank deposits, and the role of reserve ratios;(3) the current three-equation neoclassical consensus, assuming perfect creditworthiness, and hence no need for banks;(4) the analysis of the evolution of money. Copyright (c) The London School of Economics and Political Science 2009.

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  • C. A. E. Goodhart, 2009. "The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face Facts," Economica, London School of Economics and Political Science, vol. 76(s1), pages 821-830, October.
  • Handle: RePEc:bla:econom:v:76:y:2009:i:s1:p:821-830
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    1. Nobuhiro Kiyotaki & John Moore, 2002. "Evil Is the Root of All Money," American Economic Review, American Economic Association, vol. 92(2), pages 62-66, May.
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    Cited by:

    1. Khemraj, Tarron, 2010. "The simple analytics of oligopoly banking in developing economies," MPRA Paper 22266, University Library of Munich, Germany.
    2. Piet-Hein Van Eeghen, 2011. "Rethinking equilibrium conditions in macromonetary theory: A conceptually rigorous approach," Working Papers 255, Economic Research Southern Africa.

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