The Money Supply Process: How Much Progress Since C. A. Philipsâ Bank Credit?
Prodromidis, Kyprianos P.
Determinants of Money Demand in Greece, 1966 I â 1977 IV
Von Natzmer, Wulfheinrich and Reim, O.
Wirtschaftspolitik und Konjunktur in einem modifizierten ISLM-Modell
Wechselkurssystem und Phillips-Kurve
The Effect of Various Credit Controls on the Level of International Reserves
ECU â Von der Insider- zur ParallelwÃ¤hrung? Entwicklung, Bestandsaufnahme und Perspektiven
Hansmeyer, Karl-Heinrich (Hrsg.)
Staatsfinanzierung im Wandel
(Uwe E. Plachetka)
Stein, Jerome L..
Monetarist, Keynesian and New Classical Economies
Institut fÃ¼r Bankhistorische Forschung (Hrsg.)
âThe Money Supply Process: How Much Progress Since C. A. Phillips' Bank Credit?â
The money supply process is best analyzed in the context of a general equilibrium framework based on the two-endedness of market transactions. Historically, the focus has been the reserve and money markets with support of the New View and traditional multiplier analysis, respectively. A generalized analysis would feature additional markets - most importantly, the bank credit market. The emphasis placed on bank credit more than sixty years ago by C. A. Phillips is reflected in recent modelbuilding. In these models, deposit supply shocks associated with changes in bank credit are responsible for "disequilibrium money." The paradox of the banking system and the individual bank posed by Phillips can be resolved by treating the means of payment as the output of banks rather than as an input. As a seller of demand deposits, the individual bank becomes the microcosm of the banking system.
Prodromidis, Kyprianos P.
âDeterminants of Money Demand in Greece, 1966 1 - 1977 IVâ
In this paper we examined the determinants of money demand in Greece. The paper consisted of a theoretical and an empirical part. In the theoretical part, we distinguished between the short-run and the long-run money demand equations and introduced an adjustment mechanism linking these two expressions. According to this mechanisms, the observable change in money stock was explained by two terms: the difference between actual and desired real cash balances in time period t - 1, and the change in the desired real cash balances from time period t - 1 to time period t. The arguments entering in the long- as well as in the short-run money demand equations were: permanent income, the rate of interest and the rate of change of the general price level. The empirical analysis was based on a sample of forty-eight quarterly observations covering the period 1966 I - 1977 IV, and utilized quarterly data going back to 1958 II for the formation of the necessary observations of the permanent variables. Thirty-two observations of a measured variable were needed to make one observation of a permanent variable. In the empirical part of the paper we tested for the stability as well as for the homogeneity of the long-run money demand equation in relation to prices. The results suggest that the demand f or nominal cash balances in Greece was homogeneous to the first degree to prices (permanent or measured). However, the long-run demand function for real permanent (desired) money stock was unstable during the 1972 II to 1974 II period. The long-run elasticity estimates of real permanent money with respect to real permanent income, the rate of interest and the rate of change of permanent prices were around 1.8 to 1.9, - 0.15 and - 0.1 1, respectively. Furthermore, the coefficients of the adjustment mechanism introduced in the paper were estimated to about 0.9 and 0.25, respectively. This finding suggests that, in the 1966 I - 1977 IV period, the relative change in the observable real money stock in Greece was explained mainly by t???aA?he relative change in desired real cash balances, and in part by the relative change in the gap between the desired and measured real money stock of the preceding quarter. Finally, forecasts made for the first two quarters outside the sample period were satisfactory. The root mean square errors of the forecasts were less than one percent.
Von Natzmer, Wulfheinrich and Reim, O.
âEconomic Policy and the Business Cycle in a Modified ISLM Modelâ
The model presented here extends traditional ISLM analysis by adding a nonlinear, income-dependent investment effect. The result is a sigmoid IS function that rises positively in the medium income range. Where monetary policy is stringent, steep LM curve, the ISLM equilibrium is clear-cut despite the induced investment. In contrast, multiple equilibria occur under slight monetary restrictions. In such a case, if at the start there is ISLM equilibrium for low incomes, one-time financial and monetary policy measures of limited duration cause a permanently higher income. If, in addition, price level effects are taken into account, in this model it is of decisive importance what level or levels the price-level-neutral income has. Overall equilibrium, ISLM equilibrium at constant price levels, may in certain circumstances be unstable or only possible in the case of low incomes. The consequence is that active financial and/or monetary policy can give rise to a higher income only for a limited period, since the inflation effects triggered by non-linear income-dependence offset the employment effect. Under these circumstances, the higher income can be maintained only where continual financing of a rising price level is practiced by way of monetary policy. Otherwise a business cycle induced by economic policy will ensue.
âExchange Rate System and Phillips Curveâ
Following an article by Holtfrerich (Kredit und Kapital, 1982) a lively controversy ensued (see contributions by M. J. M. Neumann, Lang and Ohr and also Holtfrerich in Kredit und Kapital, 1982 and 1983) on whether flexible exchange rates place the Federal Republic of Germany in a position to pursue a more stability-oriented economic policy than was the case under fixed exchange rates. For the evidence presented in this connection, especially the delimitation of periods is of decisive importance. In this article it is therefore proposed that a meaningful delimitation of periods should be oriented to General foreign trade conditions. Then, for the total period under consideration, 1955 to 1982, we arrive at three subperiods: 1955 to 1958, characterized by limited convertibility and foreign exchange controls; 1959 to 1972, characterized by basically fixed exchange rates; 1973 to 1982, characterized by (restrictedly) flexible exchange rates. During the first and third subperiods, the money supply and hence also the inflation rate of the German economy could be controlled largely by the economic policy-making bodies, while under fixed exchange rates no such control was possible over a long period. On the basis of period delimitation oriented to the General foreign trade data the empirical evidence demonstrates clearly that flexible exchange rates are more suitable for ensuring price level stability coupled with a minimum of unemployment.
âThe Effect of Various Credit Controls on the Level of International Reservesâ
The objective of this paper is to analyze and evaluate the effects of various types of monetary and credit policies on the level of international reserves. Most Less Developed Countries use ceilings on credit granted by the Banking System and Advanced Deposits on Imports as instruments to control and stabilize the Balance of Payments. This paper shows that domestic credit control (Advanced Deposits on Imports included) by the Central Bank is more effective than setting ceilings on Private Banks Credit for controlling the flow of Foreign Reserves.
âECU - From an Insider Currency to a Parallel Standardâ
The European Currency Unit (ECU) is the centre-piece of the European Monetary System (EMS) which was established in March 1979. Besides the official use of ECU within the EMS the private use of ECU has been increasing remarkably during the past. The ECU-market is a growing special sector of international financial markets in spite of some legal problems in connection with currency laws. With the advanced size of the international ECU-market, the classical functions of money are fulfilled to a modest degree. To some extent the ECU is accepted as a foreign trade currency, particularly in countries with high inflation rates. Although its suitability to be used as a store of value is reduced by the share of weaker currencies and the inconstant definition of the currency basket, the ECU developed very successfully to an important international bond currency. The ECU as a unit of account has been gaining some importance in the European banking sector. But a broader use of private ECU is limited as long as its status as a foreign currency has not vet been clarified, especially in the Federal Republic of Germany. The Bundesbank is in a somewhat isolated position among European central banks because of its opposition to the acknowledgement of the ECU as a foreign currency. The principle of free capital movements demands a complete allowance of international ECU-transactions. The present treatment of ECU-transactions in the FRG has a negative impact on the competition amongst banks, too. A recognition of the ECU as a foreign currency would neither imply negative consequences for stabilisation policy nor impair the leeway for monetary policy in West Germany. But it could have some advantages for banking supervision. For these reasons, the ECU should have the status of a foreign currency in the FRG.