Filippo Cesarano

Hume's specie-flow mechanism and classical monetary theory: An alternative interpretation

Abstract Humes celebrated essay on the international distribution of money has always been criticized for ignoring the law of one price. Contrary to the traditional interpretation, however, Hume actually maintains that law and argues for the stability of long-run equilibrium. Putting money market equilibrium in the foreground, his analysis is essentially founded on the same hypothesis as the modern monetary approach, albeit focusing on the supply rather than on the demand side of the money market.

Economic history and economic theory

Since the mid‐1950s the spread of formal models and econometric method has greatly improved the study of the past, giving rise to the ‘new’ economic history; at the same time, the influence of economic history on economists and economics has markedly declined. This paper argues that the contribution of history to the advancement of economics is still paramount, as is evident from the evolution of monetary theory and institutions.JEL classification: NO1, A12

Demand for money and expected inflation

The role of the expected rate of inflation in the demand for money has been highly controversial both at the theoretical and the empirical level. This note critically discusses these issues and puts forward a hypothesis accounting for the significance of expected inflation in money demand equations which is corroborated by an empirical investigation of the Italian experience, particularly suited for this specific experiment.

The New Monetary Economics and the theory of money

Abstract A critical analysis of the main tenets of the New Monetary Economics (NME) is carried out from the viewpoint of received monetary theory. It is shown that the essential properties of a monetary economy are independent of the tangible character of the means of payment and, in particular, that these properties establish a relationship between the medium of exchange and the unit of account (section 2). Dwelling upon these results, the NME proposition, according to which money is a product of regulation, is found to be untenable (section 3).

On the viability of monetary unions

Abstract This paper contrasts the notion of optimality with that of viability of monetary unions and attempts to provide a positive analysis of the latter by dwelling upon Herbert Simons work on models of bounded rationality. A macro model developed by Frenkel and Aizenman is appended to the above theoretical framework and it is shown that viability is strictly related to certain specific properties of the economy.

Exchange Rate Regimes and Reserve Policy on the Periphery: The Italian Lira 1883-1911

The three exchange rate regimes adopted by Italy from 1883 up to the eve of World War I — the gold standard (1883-1893), floating rates (1894-1902), and “gold shadowing” (1903-1911) — produced a puzzling result: formal adherence to the gold standard ended in failure while shadowing the gold standard proved very successful. This paper discusses the main policies underlying Italy’s performance particularly focusing on the strategy of reserve accumulation. It presents a cointegration analysis identifying a distinct co-movement between exchange rate, reserves, and banknotes that holds over the three sub-periods of the sample. Given this long-run relationship, the different performance in each regime is explained by the diversity of policy measures, reflected in the different variables adjusting the system in the various regimes. Italy’s variegated experience during the gold standard provides a valuable lesson about current developments in the international scenario, showing the central role of fundamenals and consistent policies.

Expectations and Monetary Policy: A Historical Perspective

Classical economists developed a surprisingly sophisticated analysis of money supply variations that, anticipating the main features of contemporary theory, emphasizes the role of information in the transmission mechanism. Drawing on the classical contributions, this paper outlines a general approach to monetary policy, treating information as a scarce commodity allocated optimally by rational agents. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester

Financial innovation and demand for money: some empirical evidence

Recent criticism of money growth targets has been based on the implications of spreading financial innovation, since the latter has been considered to undermine monetary policy effectiveness both by bringing about an increase in the interest elasticity of money demand and by producing instability of the money demand function. The empirical results presented in this paper – focusing on a single and specific case of financial innovation particularly suited to study the isssue at stake – falsify both hypotheses.

Defining fundamental disequilibrium: Keynes's unheeded contribution

The Bretton Woods agreements set up the post‐war monetary order on the basis of fixed exchange rates and autonomous national economic policy. Changes in parity were allowed in the case of fundamental disequilibrium, but this concept was not defined, promoting a lengthy but sterile debate. This paper, after reviewing the main features of the discussion, analyzes Keyness overlooked contribution, which helps to clarify the issue at stake.

Competitive money supply: the international monetary system in perspective

This paper inquires into monetary standards, focusing on the characteristics of money instead of the exchange rate regime. The transition from commodity to fiat money, a major break in monetary evolution, has led to international arrangements that represent an application of the competitive money supply model (section 1), which is consistent with various optimality criteria and has far‐reaching implications for the future development of the monetary system (section 2).