Johnson, Harry G.
Comment on Mayer on Monetarism
Monetarism in Historical Perspective
Lenard, Thomas M.
On Alternative Approaches to Employment Dynamics
Jarchow, Hans-Joachim and Möller, Herbert
Geldbasiskonzepte und Geldmenge
Koch, Walter A.S. and Schäfer, Wolf
Zinstheoretische Aspekte des Debt Management in einer offenen Wirtschaft
Der Eurodollarmarkt als Instrument internationaler Geldschöpfung?
Inflationistische Entwicklung - Kapitalmarktprobleme und Preisindexbindung
Der Fishersche Preiserwartungseffekt: Ein Erklärungsansatz für das Gibson-Paradoxon
Jokl, Stefan and Schönemann, Michael and Walcher, Frank (Hrsg.)
Probleme der Wirtschaftspolitik - Beiträge zu einer erklärungsrelevanten Ökonomie, Festgabe für Fritz Voigt (Jorg-G. Grunwald)
Graphische Gestaltung von Zahlenmaterial (Be)
Zur Bedeutung der Finanzunternehmung für die Geldpolitik (Harald Mattfeld)
Bankenliquidität und Zins als Orientierungsvariable der Geldpolitik (Gerhard Vogl)
Johnson, Harry G.
"Comment on Mayer on Monetarism"
Discussion of monetarism belongs to a recently passed era of U.S. policy debates and runs the danger of formalization. Of Mayer's propositions, the crucial one is the assumption of a stable demand for money which differentiates monetarism from both Keynesian theory and the old quantity theory (unstable velocity) that Keynes attacked. Classical quantity theory went through two phases; the "neutrality of money" phase, designed to clear the way for real General equilibrium analysis; and "the conditions for money equilibrium analysis", of disturbances to real and monetary equilibrium in a monetary economy. Prewar II theorists never regarded policy changes in money supply as a destabilizing factor, and treated expectational change in money demand as involving instability of velocity; to be offset by policy. Modern quantity theorists instead make policy a chief disturber of equilibrium, in the face of a stable demand for money.
"Monetarism in Historical Perspective"
The monetarist view grew out of the climate of professional economic opinion in the 1940s and early 1950s when discussions of policy paid no attention to money. Monetarism is a set of propositions about policy. It fosters theoretical models of the economy in which money is given a prominent role, but it is not dependent upon any particular model. Monetarism has helped to re-establish the importance of a proper monetary policy to economic stabilization. Much of the monetarist view has come to be widely accepted.
A controversy between monetarists and fiscalists which remains unsettled is whether a discretionary fiscal policy would be needed if a policy of fairly stable monetary growth were pursued. The monetarist position is that such a monetary policy would produce greater stabilization than we have had in the past and that we would then be better off with an automatic than a discretionary fiscal policy.
Lenard, Thomas M.
"On Alternative Approaches to Employment Dynamics"
This paper compares the effects of imperfect price and money wage information in a three good aggregate model. When price information is imperfect employment will rise (temporarily) in response to an expansionary disturbance only if learning is sluggish relative to labor market adjustment. When money wage information is imperfect, this short run trade-off between employment and price change is obtained as long as learning is not instantaneous. Both the learning lag and the lag of wages behind prices play a role. In response to a contractionary disturbance the assumptions of imperfect information will not affect the employment path followed.
Jarchow, Hans-Joachim and Möller, Herbert
"Monetary Base Concepts and the Quantity of Money"
The relations between different monetary base concepts derived from structural equations for the monetary domain of an economy, namely the monetary base (Bm), the adjusted base (B') (adjusted for certain refinancing and investment dispositions of the commercial banks) and the extended base (Be) (allowing for the quantity of minimum reserves set free), and the supply of money and credit formed the central issues of the foregoing study. The multipliers linking up these values permit the assumption of certain differences, depending on what monetary base concept is applied. For example, it can be expected that the money-supply multipliers (like the credit-supply multipliers) will respond to changes in the loan rate and bank rate relatively insensitively when Be is applied and relatively sensitively when B' is applied. Since it also proved that when Be is applied the multipliers respond less markedly to changes in the minimum reserve rate than the other two cases, it can be assumed that the influence of Be will have a comparatively strong effect on the change in the quantity of money.
With regard to the time path of the adjustment processes, where B' is applied we arrive at the hypothesis that in the event of an increase in the adjusted base (B'), e. g. on account of inflows of foreign exchange, the quantity of money rises initially very rapidly (owing to the resulting monetarization effect deriving, for instance, from conversion of foreign exchange into domestic currency), thereafter remains temporarily stagnant and then increases again in the course of the ensuing expansion of credit. The consequent trend of the quantity of money permits us to expect a time profile which, in our opinion, should differ perceptibly from the time profile obtained by applying Bm and Be.
The relationships described in the contribution form the theoretical background for the following second part, in which the supply of money (together with the demand for money) in the Federal Republic of Germany is estimated econometrically for the period form early 1965 to early 1973, using alternative monetary base concepts.
Koch, Walter A.S. and Schäfer, Wolf
"Theoretical Interest-related Aspects of Debt Management in an open Economy"
The study shows what conditions the international interest system imposes on the government debt management of a country and what effects are triggered when a country withdraws from the interest system by introducing foreign trade safeguards via the exchange rate. The analysis differs in this respect from the studies to be found in the literature, which start out as a rule from the condition prevailing in a closed economy shielded from foreign influences.
In regard to the objectives of debt management, a distinction is drawn between interest-cost minimization and trade cycle stabilization. The study demonstrates that the international interest system creates conditions under which the first-named objective can be more easily attained by way of a more effectively pursued debt management policy. It must be taken into consideration, however, that - as explained in detail - the inflation rate in the United States largely determines the cost of debt management in other countries. As far as the objective of trade cycle stabilization is concerned, it is found that the bringing about of demand effects via interest-rate changes effected by debt conversion operations under debt management policy is quite impossible or possible only to a negligible extent.
If a country evades complying with the conditions of the international interest system by resorting to a flexible exchange rate, the successful mechanisms of debt management expected of a debt conversion policy and dealt with in the literature will take effect, because that policy can be freed from foreign, and particularly American, price and interest-rate dominance and be oriented solely to the given requirements.
"The Eurodollar Market as an Instrument of International Money Creation?"
Prevailing theory describes "money creation on the Euro-money market" as a multiplier process, the course of which is analogous to that of the money-creating processes of national banking systems, but is independent of the norms and conditions which apply to creation of money in an individual national banking system.
For several reasons the author considers this description to be erroneous. First of all, it must be stated that there are no commercial banks with an exterritorial domicile and that therefore in their business activities all banks are tied down by national and currency-specific requirements. This position is not altered by settlements via (foreign) exchange accounts. Hence there is no "money creation on the Euro-money market" which is autonomous and independent of national norms and conditions. It stands to reason, therefore, that only the influence of events on the Euro-money market on money creation in the various currency areas of the Euro banks can be investigated. Some reflections along this line show that, in the final analysis, the interdependence of all money markets compels us to set up a "world model of money creation" and to make the ceteris paribus clause unnecessary by means of a simultaneous solution. Furthermore, it becomes clear that, on account of the assumption of uniform reserve rates for deposits of bankers and deposits of non-bankers, and on account of the assumption of uniform outflow rates, the model used by the prevailing theory suppresses precisely those facts and relationships which are needed to explain and forecast events on the Euro-money market.
"Inflationary Trend Capital Market Problems and Price-Index Linking"
In the debate on price-index links in capital transactions, pride of place has so far been given chiefly to aspects of trade-cycle, distribution and social policy. On account of the inflationary trend, however, substantial capital market problems have also arisen, which could likewise be solved by way of price-index links.
A renewed increase in interest rates, a further decrease in willingness to engage in long-term investment of money and a further shortening of maturities on the capital market must be expected in the event of a renewed, steeper rise in prices. These tendencies towards dissolution of the capital market in the money market and the related economic policy problems could be prevented by greater stability of the value of money. But since the chances of a stabilization policy having lasting effect have to be assessed more sceptically than optimistically, not the least of the reasons being the relatively narrow limits to the employment policy measures of the Federal government and the Bundesbank, a "second-best" solution must be found. Index links suggest themselves as the most expedient "second-best" way to find a solution also to the capital market problems.
Setting out from these considerations, the costs of various variants of price-index linking are estimated and financing suggestions offered. Above all, the author examines what effects on the competitive situation of the various groups of banks can be expected, if price-index linking is financed via a corresponding increase in interest rates for credits.
A far-reaching reduction of possible distortions of competition could be attained by limiting price-index links to investments for terms of 10 years and more. Apart from considerations of competition policy, the necessary stimulation and safeguarding of long-term dispositions on the capital market and wealth policy aspects would also speak in favour of this proposal.
"Fisher's Price Expectation Effect: an explanatory approach to Gibson's Paradox?
Gibson's paradox posits a positive correlation between long-term interest rate trends and the General price level. I. Fisher explained this fact with the price expectation effect; according to this hypothesis, on entering into a credit relationship in an inflation, creditor and debtor agree on an inflation margin added to the interest rate, which is equivalent to the expected rate of price increases. This thesis has recently found ever more widespread approval and there are already numerous empirical studies to confirm it. These studies commonly assume that economic entities derive their price expectations by weighting price-change rates that have already occurred, thus permitting use of socalled distributed lags.
However, in the light of various indications derived from polls, etc., it seems very improbable that the formation of expectations by economic entities is in line with the extremely simple, restrictive expectation structures implied by the use of the various lag models.
Furthermore, over and above the "agreement" between the parties to the credit contract alleged under the price-expectation hypothesis, an attempt is made to specify modes behaviour which may lead to an interest rate increase during an inflation. For the FRG, however, a confrontation of such modes of behaviour with empirical data provides possible pointers in this direction only for the most recent period, in which connection, moreover, the effects on the interest rate are not always unequivocal.
With regard to the empirical tests, it is shown that both partial estimates of an inflationary component in the interest rate and tests with comprehensively specified interest rate models are problematical for various reasons; moreover, the price-expectation effect cannot be clearly delimited statistically in relation to the rival hypotheses designed to explain the Gibson paradox, especially the income effect and the response effect. The author therefore comes to the conclusion that the price-expectation hypothesis cannot be counted as yet among the economic hypotheses of demonstrated tested significance.