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Using Equity Markets to Teach Long-Run Monetary Neutrality

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  • Stephen Miller

    () (University of Nevada)

Abstract

This paper outlines a process for teaching long-run neutrality of money, drawing an analogy between equity markets and the money market. The key points in the discussion include the following: (1) What is the price of money? (2) Why does the long-run demand for money trace out a rectangular hyperbola? (3) Why does the slow adjustment of goods and service prices to changes in the supply of money lead to a different short-run demand for money? and (4) Why does a successful currency reform generate similar short-run movements in the price of money as movements in equity share prices after a change in the supply of shares? I have used this approach successfully for over 30 years at all levels, wherever I need to discuss the money market in a macroeconomic model.

Suggested Citation

  • Stephen Miller, 2010. "Using Equity Markets to Teach Long-Run Monetary Neutrality," International Review of Economic Education, Economics Network, University of Bristol, vol. 9(1), pages 124-134.
  • Handle: RePEc:che:ireepp:v:9:y:2010:i:1:p:124-134
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