Monetary Policy without Money: Hamlet without the Ghost
Today's standard model of monetary policy has aggregate demand responding directly to an interest rate under the central bank's control, and ignores the role played by the quantity of money in the transmission mechanism. Even though monetary policy is usually aimed at controlling price level behaviour, and the price level is appropriately modelled as being determined by the interaction of the supply and demand for money, it is going too far to characterise this standard model as "Hamlet without the prince". Canadian experience shows that the current framework has worked too well, and its predecessor, based on money growth targeting, worked too badly for this to be fair. Nevertheless, inflation is a monetary phenomenon, and monetary aggregates continue to have useful leading indicator properties. These facts, among others, suggest that a theory of monetary policy which pays explicit attention to the money supply permits a coherent understanding of monetary policy issues. The neglect of money by current approaches leads to a fragmented analysis of monetary policy, just as the omission of the Ghost's demand for vengeance from a production of Hamlet would undermine the play's coherence.
|Date of creation:||Jun 2003|
|Contact details of provider:|| Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2|
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Edward Nelson, 2003.
"Money and the transmission mechanism in the optimizing IS-LM specification,"
2003-019, Federal Reserve Bank of St. Louis.
- Edward Nelson, 2004. "Money and the Transmission Mechanism in the Optimizing IS-LM Specification," History of Political Economy, Duke University Press, vol. 36(5), pages 271-304, Supplemen.
- Nelson, Edward, 2003. "Money and the Transmission Mechanism in the Optimizing IS-LM Specification," CEPR Discussion Papers 3898, C.E.P.R. Discussion Papers.
- Pierre L. Siklos & Andrew G. Barton, 2001. "Monetary aggregates as indicators of economic activity in Canada: empirical evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 34(1), pages 1-17, February.
- David E. Laidler, 1988.
"Taking Money Seriously,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 21(4), pages 687-713, November.
- Neumann, Manfred J. M. & von Hagen, Jürgen, 2002.
"Does inflation targeting matter?,"
ZEI Working Papers
B 01-2002, University of Bonn, ZEI - Center for European Integration Studies.
- Freedman, C, 1983. "Financial Innovation in Canada: Causes and Consequences," American Economic Review, American Economic Association, vol. 73(2), pages 101-106, May.
- Svensson, Lars E. O., 1999.
"Monetary policy issues for the Eurosystem,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 51(1), pages 79-136, December.
- Svensson, L.E.O., 1999. "Monetary Policy Issues for the Eurosystem," Papers 667, Stockholm - International Economic Studies.
- Svensson, Lars E O, 1999. "Monetary Policy Issues for the Eurosystem," CEPR Discussion Papers 2197, C.E.P.R. Discussion Papers.
- Svensson, Lars, 1999. "Monetary Policy Issues for the Eurosystem," Seminar Papers 667, Stockholm University, Institute for International Economic Studies.
- Lars E.O. Svensson, 1999. "Monetary Policy Issues for the Eurosystem," NBER Working Papers 7177, National Bureau of Economic Research, Inc.
- Charles Freedman, 1981. "Monetary Aggregates as Targets: Some Theoretical Aspects," NBER Working Papers 0775, National Bureau of Economic Research, Inc.
- Laidler, David, 1999. "The Quantity of Money and Monetary Policy," Staff Working Papers 99-5, Bank of Canada.
- Niamh Sheridan & Laurence M. Ball, 2003.
"Does Inflation Targeting Matter?,"
IMF Working Papers
- Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
- Mitsuhiro Fukao, 2006.
"Financial Strains and the Zero Lower Bound: The Japanese Experience,"
in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 203-232
National Bureau of Economic Research, Inc.
- Mitsuhiro Fukao, 2003. "Financial strains and the zero lower bound: the Japanese experience," BIS Working Papers 141, Bank for International Settlements.
- Nelson, Edward, 2003.
"The future of monetary aggregates in monetary policy analysis,"
Journal of Monetary Economics,
Elsevier, vol. 50(5), pages 1029-1059, July.
- Nelson, Edward, 2003. "The Future of Monetary Aggregates in Monetary Policy Analysis," CEPR Discussion Papers 3897, C.E.P.R. Discussion Papers.
- Laidler, David E W & Parkin, J Michael, 1975. "Inflation: A Survey," Economic Journal, Royal Economic Society, vol. 85(340), pages 741-809, December.
When requesting a correction, please mention this item's handle: RePEc:uwo:uwowop:20037. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.