Thorsten Polleit

Money and Credit Demand

The quantity theory of money, dating back to contributions made in the mid-16th century by Spanish Scholastic writers of the Salamanca School, is one of the oldest theories in economics (de Soto, 2006, p. 603). In his book The Purchasing Power of Money (1911), Fisher gave the quantity theory, as inherited from his classical and pre-classical predecessors, its modern formulation. Fisher’s version, typically termed equation of exchange or transaction approach can be stated as:

A critical review of the real interest rate concept

The neutral real interest rate (NRIR) is defined as the level of the real interest rate that is consistent with low and stable inflation and real production corresponding to potential production. To put it differently: the NRIR is the rate consistent with the output gap (y − y*) and inflation gap nOpen image in new window nbeing zero, where y (y*) represents (potential) output and nOpen image in new window nis actual (target) inflation.