John Smithin

Inflation targeting in a simple macroeconomic model

In this paper, we argue that an explicit inflation-targeting policy is not likely to be a desirable monetary policy rule, even if it were agreed that a lower inflation rate is an important goal of policy. Inflation targeting is not neutral in the short or the long run, and a strict policy will tend to reduce the equilibrium growth rate. In terms of income distribution, a lower inflation target will tend to reduce real wages and profits and increase real interest rates, that is, the return to rentiers. In certain circumstances, it may still be possible to achieve a combination of both higher growth and lower inflation using other types of policy. However, this would actually require lower real interest rates, rather than the higher rates that are traditionally associated with anti-inflation policy.

Money, financial institutions and macroeconomics

Introduction A.J. Cohen, et al. Part I: The Theory of a Monetary and Credit Economy. 1. The Uses of the Pure Credit Economy H.-M. Trautwein. 2. Post Keynesian Monetary Theory and the Principle of Effective Demand C. Rogers. 3. Keynesians, New Keynesians and the Loanable Funds Theory M. Messori. 4. The Fisher Effect: Phenomenology, Theory and Policy A. Cottrell. 5. Loanable Funds, Endogenous Money and Minskys Financial Fragility Hypothesis M. Lavoie. Part II: Alternative News on Money and Credit. 6. Keynes and Friedman on Money G. Dostaler. 7. The Role of Credit in Fishers Monetary Economics R.W. Dimand. 8. Henry Dunning Macleod and the Credit Theory of Money N.T. Skaggs. 9. Early Twentieth-Century Heterodox Monetary Thought M. Seccareccia. 10. The Role of Credit in the Mania-Crisis Process B. Spotton. Part III: Monetary Policy Issues in North America. 11. The Institutionalization of Deflationary Monetary Policy T.I. Palley. 12. Monetarism and the United States Economy D.I. Fand. 13. A Fiscal-Monetary Mix-Up D. Laidler. 14. Flying Blind: Recent Federal Reserve Policy L.R. Wray. Part IV: Monetary Policy Issues in Europe. 15. The Problematic Nature of Independent Central Banks P. Arestis, M. Sawyer. 16. Credibility, Reputation, and the Instability of the EMS H.-P. Spahn. 17. Competition and the Future of the European Banking and Financial System V. Chick, S.C. Dow.18. The Monetary Shock of German Unification H.-H. Francke, H. Nitsch. Index.

The Structure of Financial Markets and the 'First Principles' of Monetary Economics

There has been a significant degree of financial restructuring over the last few decades, which has prompted a rethinking of the first principles of monetary economics. The focus here is on how four specifications of these principles address such issues as the need for central banks and the potential for separation of the monetary functions. The case is made for one approach, which suggests that the need to establish trustworthy credit relations, in an environment subject to fundamental uncertainty, is at the heart of monetary systems. It is argued that monetary history demonstrates that monetary standards and central banking have indeed tended to be the outcome of the competitive process in the financial sector. Copyright 1999 by Scottish Economic Society.

An Alternative Monetary Model of Inflation and Growth

This paper presents a simple model of a monetary economy in which production takes time and is financed by loans from financial intermediaries such as banks. The model is an example of a pure credit economy, but does not contain the contentious Wicksellian construct of a natural rate of interest. Rather, the main determining factor of economic outcomes is the struggle over income distribution between finance (Keyness rentiers), industry, and labour. The model yields a number of macroeconomic results, some of which are sharply at variance with those obtained in more orthodox or mainstream, models. In particular, a structural long-term Phillips-curve type relationship emerges in inflation-growth space, for some demand-side and monetary policy changes. In addition, the model is also able to identify other circumstances in which the opposite cases of either stagflation or non-inflationary growth can occur.

Is monetary sovereignty an option for the small open economy

Abstract This paper suggests a mechanism by which a small open economy can achieve an independent monetary policy and lower real interest rates even in a highly integrated global or regional trading environment. The mechanism rests on the observation that orderly capital outflow, as opposed to capital flight, represents a net increment to a nations credit position vis-a-vis the rest of the world and may therefore indirectly reduce the risk premium demanded by those holding assets denominated in the national currency. The possibility then arises of a ‘virtuous cycle’ in the payments position of jurisdictions with a low cost of capital. In the context of a simple macroeconomic model, it is shown that the suggested mechanism can be operative in the long run in a flexible exchange rate environment. The ability to conduct an independent monetary policy in these circumstances obviously raises the stakes for a national economy contemplating entry into such arrangements as fixed exchange rates or monetary unions. Monetary policy becomes once again an important tool by which various policy objectives can be achieved.

Essays in the fundamental theory of monetary economics and macroeconomics

This book provides a comprehensive overview, in the form of eight long essays, of the evolution of monetary theory over the three-quarters of century, from the time of Keynes to the present day. The essays are originally based on lecture notes from a graduate course on Advanced Monetary Economics offered at York University, Toronto, written in the style of academic papers. The essays are mathematical in method ia but also take a historical perspective, tracing the evolution of monetary thought through the Keynesian model, the monetarist model, new classical model, etc, up to and including the neo-Wickesellian models of the early 21st century. The book will be an essential resource for both graduate and advanced undergraduate students in economics, as well as for individual researchers seeking basic information on the theoretical background of contemporary debates. Contents: Money, Debt and Credit in the Enterprise Economy The Recurring Debates in Monetary Economics Variations on the Theme of the Quantity Theory of Money Wicksellian and Neo-Wicksellian Models of Monetary Economics Keynes, Samuelson, Hicks and the Fate of Keynesian Economics Long-Run Models of Monetary Growth, Forced Saving, Wealth, Time Preference, and the Neoclassical Theory of Capital An Alternative Monetary Model of Economic Growth, the Business Cycle, Inflation and Income Distribution Capitalism in One Country?: A Re-examination of Monetary Mercantilism from the Financial Perspective Readership: Graduate and advanced undergraduate courses in monetary theory. Key Features: Provides a comprehensive overview of monetary theory in the 20th and 21st centuries Reference resource for graduate and advanced undergraduate students and individual researchers User-friendly mathematics presented in sufficient detail to enable the reader to understand the debates

Real wages, productivity and economic growth in the G7, 1960-2002

Abstract This paper investigates empirical real wage and productivity dynamics in the G7 countries using annual data for 1960–2002. The findings suggest that the level of labor productivity is positively related to GDP growth in all countries, and real wages are positively related to growth in some of them. The results tend to confirm the ‘profit paradox’. This postulates a positive relationship between economic growth and the aggregate profit share, and suggests that the frequent support of business interests for deflationary economic policies is a puzzle.

Keynes, Chicago and Friedman: A review essay

This paper is a review essay of Leeson, R. (Ed.), Keynes, Chicago and Friedman (2 volumes), Pickering and Chatto, London, 2003. These volumes contain a comprehensive collection of previously published papers, and also some interesting new materials, relating to the controversy about the accuracy of Milton Friedmans depiction of the “oral tradition” in monetary economics at the University of Chicago in the 1930s and 1940s. As such, the work is a notable addition to the scholarly literature. The broader issue raised by this collection is the precise relationship between Friedmans “monetarism” and the so‐called “Keynesian economics” of the neoclassical synthesis, and specifically, whether there was any real difference between them.

The Role of Money in Capitalism

Int. Journal of Political Economy, vol. 32, no. 3, Fall 2002, pp. 5–22.© 2004 M.E. Sharpe, Inc. All rights reserved.ISSN 0891–1016 / 2004

The length of the production period and effective stabilization policy

9.50 + 0.00.The authors are, respectively, Ph.D. candidate in Social and Political Scienceat the University of Cambridge, England, and professor in the Department ofEconomics and at the Schulich School of Business, York University, Toronto,Canada. Without implicating them, the authors thank Geoff Ingham and AlanKerns for their insightful comments.