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The Dangers of Monetary Policy in Agrarian Economies

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  • RICHARD C. PORTBR

    (Institute of Development Economics)

Abstract

The central banks of underdeveloped economies are frequently admonished for their apparently permissive attitude toward inflation. Where large government deficits are financed by the creation of ever-larger money balances in the economy, this criticism is quite apt. But the strictures often extend to those central banks which, in a situation where prices have already risen for reasons beyond their control, I are reluctant to refuse the accommodating expansion of the money supply. With the argument that the central bank can force prices back to their previous levels merely by insisting that the money supply does not increase, central bankers and their supporters have seldom disagreed. They justify permissive after-the-fact monetary expansions on the grounds that driving the price level back down would have unfortunate side effects

Suggested Citation

  • Richard C. Portbr, 1961. "The Dangers of Monetary Policy in Agrarian Economies," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 1(3), pages 59-72.
    • Handle: RePEc:pid:journl:v:1:y:1961:i:3:p:59-72
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