Does the stock of money have any causal significance?
Recent developments in macroeconomics, and economic policy in general, have produced a "new consensus" economy-wide model, in which the stock of money doesnot play any causal role. The stock of money operates a mere residual in the economic process. The absence of the stock of money in many current debates over monetary policy has prompted the statement by the Governor of the Bank of England (during his time as the Deputy Governor) that it is ironic that as central banks became more and more concerned with price stability, less and less attention is paid to money. Indeed, the decline of interest in money appeared to have coincided with low inflation in a significant number of countries. This has prompted a number of contributions that, wittingly or perhaps unwittingly, have attempted to "reinstate" a more substantial role for money in this "new" macroeconomics. In this paper we wish to argue that these attempts to "reinstate" money in current macroeconomic thinking entails two important problems.The first is that they contradict an important theoretical property of the new "consensus" macroeconomic model, namely that of dichotomy between the monetary and the real sector. The second is that some of these attempts either fail in terms of their objective, or merely reintroduce the problem rather than solving it. We conclude that if money is to be given a causal role in the "new" consensus model, then a great deal of more substantial research would be necessary.
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