Colin Rogers

Money, interest and capital : a study in the foundations of monetary theory

List of illustrations List of tables Series preface Preface 1. Real analysis and monetary analysis: an introduction Part I. Real analysis: Critique: 2. Wicksellian monetary theory 3. Neo-Walrasian monetary theory 4. The neoclassical synthesis revisited 5. Keynesian and monetarists 6. Friedmans monetary framework: the quantity theory restated? Part II. Monetary Analysis: Foundations: 7. Re-laying the foundations of monetary theory 8. Some further questions of method and methodology 9. Marshallian microfoundations of monetary equilibrium 10. Macroeconomic analysis and monetary equilibrium 11. Real analysis and monetary analysis: the central arguments References Index.

Crisis-induced intermittency in non-linear economic cycles

A new type of economic intermittency is found in non-linear business cycles. Following a merging crisis, a complex economic system has the ability to retain memory of its weakly chaotic dynamics prior to crisis. The resulting time series exhibits episodic regime switching between periods of weakly and strongly chaotic fluctuations of economic variables. The characteristic intermittency time, useful for forecasting the average duration of contractionary phases and the turning point to the expansionary phase of business cycles, is computed from the simulated time series.

An example of intermittency in nonlinear economic cycles

Intermittent behaviour of economic dynamics is studied by a nonlinear model of business cycles. Numerical simulations show that after an economic system evolves from order to chaos, the system keeps its memory before the transition and its time series alternates episodically between periods of low-level (quiescent) and high-level (bursting) activities. This model of economic intermittency exhibits power-law spectrum similar to the nonlinear time series observed in financial markets.

Self-fulfilling Expectations and The General Theory

AbstractIt might be more accurate, perhaps, to say that the rate of interest is a highly conventional, rather than a highly psychological phenomenon. For its actual value is largely governed by the prevailing view as to what its value is expected to be. Any level of interest which is accepted with sufficient conviction as likely to be durable will be durable& J. M. Keynes (1936, p. 203)

On 'Money' in ISLM and AD/AS Models

Hicks’s ISLM model interpretation of Keynes’s theory2 is subject to much controversy.3 In this paper, we focus upon the ‘real balance’ effect and its role in ISLM and AD/AS analyses.4 We shall argue that ISLM and AD/AS require ‘nominal anchors’. We live in a world where, increasingly, the “money“ in the ISLM and AD/AS model no longer exists (as Keynes imperfectly understood in his Treatise on Money). There are no longer any nominal anchors, rather they have been replaced by discretionary policy. As Professor Ferris nicely sums up our position, we argue that central banks are fundamentals.

The Conceptual Flaw in the Microeconomic Foundations of Dynamic Stochastic General Equilibrium Models

ABSTRACT First-generation dynamic stochastic general equilibrium (DSGE) models have been criticized for their lack of financial markets but, more perceptively, for their barter properties. This note explains why the second of these criticisms is fundamental. All DSGE models are built on frictionless, perfect barter, Walrasian microeconomic foundations. Introducing money and banks into such models converts them into a ‘friction’ contra the fundamental principle that monetary exchange is more efficient than barter. This insoluble difficulty with the microeconomic foundations of DSGE models arises because theorists ignore the Hahn problem that applies to all monetary models based on Walrasian general equilibrium (GE) microeconomic foundations. The Hahn problem reveals three things. First, a perfect barter GE solution always exists in any ‘monetary’ model erected on Walrasian GE microeconomic foundations. Second, inessential monetary features are easily attached to perfect barter microeconomic foundations but as easily removed, leaving the perfect barter solution intact. Third, attaching such inessential additions leads to logical error; the misuse of language that produces invalid conclusions. A second-generation DSGE model that is intended to increase understanding of financial crises is then examined to show that it suffers from the Hahn problem; it converts banking and financial markets into ‘frictions’, and words and economic concepts take on different meanings. That renders the new DSGE model impossible to interpret or use as a basis for advice on monetary policy.

One Hundred Years from Today

When they look back on the twentieth century, historians of thought will surely rank Irving Fisher as one of the major contributors to economic theory. Samuelson (1967) described Fisher as America’s greatest analytical economist and Tobin (1987, p. 369) acknowledges that Fisher is widely regarded as the greatest economist America has produced. Certainly, Fisher’s analytical techniques presented in The Rate of Interest (1907) and later in The Theory of Interest (1930) still permeate all corners of neoclassical economics as taught in economics departments around the world. Fisher provides the common thread that links Eugen von Böhm-Bawerk’s Capital and Interest: A History and Critique of Interest Theories (1884) through Frank Knight, Paul Samuelson, Milton Friedman and Robert Solow to contemporary textbooks such as Lectures in Macroeconomics by Blanchard and Fischer (1989), Intertemporal Macroeconomics by Azariadis (1993), Foundations of International Macroeconomics by Obstfeld and Rogoff (1996) or Advanced Macroeconomics by Romer (2006). There are also many additional links to Fisher in research on the microeconomic foundations to macroeconomics or the use of the representative agent, equilibrium real business cycle models and finance theory. A most timely illustration is the paper by Azariadis and Kaas (2007), which makes the claim that by applying the tools of dynamic general equilibrium theory to what are clearly Fisher’s core theoretical concepts it will soon be possible to produce a theory of everything in macroeconomics. In particular, it is claimed that the research programme initiated by Robert Lucas and Edward Prescott is poised to extend well beyond the frictionless equilibrium ‘environment’ of its initial versions. A re-read of Fisher’s Rate of Interest is therefore instructive not just for the history of economic thought, but is also of direct relevance to developments in modern macroeconomics. What then was Fisher all about? In what follows I will draw on Samuelson (1967) and Dougherty (1980) to summarise briefly Fisher’s vision. Then I will revisit the criticisms of Fisher’s analysis and evaluate some properties and interpretations of his model before providing a brief overview of Fisherian analysis as it appears in modern macroeconomics. I conclude with an assessment of Fisher’s legacy.