Controlling the Price Level
Governments determine the size of the unit of value just as they determine the length of the length and weight of physical units of measure. What are the different ways that a government can control the size of the unit of value, that is, control the price level? In general, the government designates a resource gold, paper currency, another country's currency and defines its unit of value as a particular amount of that resource. An interesting variant proposed by Irving Fisher in 1913 and implemented more recently in Chile is to alter the resource content of the unit to stabilize the price level. Another idea is to alter the interest rate paid on reserves in a way that stabilizes the price level.
|Date of creation:||Jan 1999|
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|Publication status:||published as Contributions to Macroeconomics, (The B.E. Journal of Macroeconomics), Vol. 2: Iss. 1, Article 5 (2002)|
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- Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
- Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
- James Tobin, 1998. "Monetary Policy: Recent Theory and Practice," Cowles Foundation Discussion Papers 1187, Cowles Foundation for Research in Economics, Yale University.
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- Don Patinkin, 1993. "Irving Fisher and his compensated dollar plan," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-34.
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