2014-10-06
Like gold, credit is subject to laws of supply and demand. Since it doubles as money, its quantity can adjust to alleviate an excess demand for money assuming that expansion is not limited by elevated credit risk. We can expect credit markets to conform more closely to the classical model if policy uncertainty is reduced ( Koppl 2002 , 184-194). [1] A consistent rule like nominal income targeting...
2014-09-24
In some ways, a nominal income target emulates the operation of a gold standard. Both a gold standard and a nominal income target allow the stock of base money to adjust to demand for money. The historical gold standard serves as an ideal case study as data exists for both the supply of and demand for monetary gold. The largest increases in demand for gold occurred as a result of the decisions of...
2014-09-23
I'm beginning a series on nominal income targeting and free banking. Today I suggest a rough outline for synthesis of the two views. Over the last few decades, economists with monetarist sympathies have proposed alternative arrangements for the modern financial system. Proposals tend to fall under one of two categories. Under one scenario, the central bank targets the long-run level of nominal...
2014-09-19
I've made some adjustments to my paper to incorporate Roger Koppl's "Big Players". It really helps tie together my argument for nominal income targeting and narrative of the gold standard. Central bank activism under the gold standard can be typified by the Big Player problem. “Big players are privileged actors who disrupt markets ( Koppl 2002 ).” They are capable of doing so because by virtue of...
2014-09-13
Many Austrian economists are skeptical of the efficacy of a nominal income level targeting policy for a central bank. For example, Alex Salter argues that nominal income (he discusses NGDP) should not be treated as an object of choice for central bankers. His perception that nominal income level targeting treats nominal income as an object of choice is representative of a widespread Austrian...
2014-08-26
Standard policy proposal concerning gold flows took a number of forms for Austrians economists, with two being most common. Lionel Robbins expressed what appears to be the standard Austrian view that if gold inflows were the result of monetary expansion by another central banks, the central bank receiving them were under no responsibility to expand: Broadly speaking they [the “rules of the Gold...
2014-08-24
When Ludwig von Mises first expounded his theory of the business cycle in 1913, itself a wedding of Wicksell’s natural rate hypothesis and Bohm Bawerk’s capital theory, central bank coordination was not a problem. The Bank of England played a leading role in determining policy and by doing so promoted international monetary stability ( Eichengreen 1987 ; Bordo and Macdonald 2005 ). This allowed...
2014-08-23
The effects of central bank policy operated through multiple channels under the international gold standard. The most obvious is the domestic inflation rate. As the central bank expands the monetary base, prices tend to rise. As it contracts the base, prices tend to fall. A full account of the consequences of independent central bank policy must be broader than a measure of monetary expansion and...
2014-08-17
Monetarist Business Cycle Inflationary booms are not necessarily followed by deflationary recession. They can have soft landings. Depression is caused by fall in the money stock or, likewise, a rise in demand for money unreciprocated by a fall in prices. (Yeager, Cash Balance Interpretation of Depression) Monetarist analysis relies on the equation of exchange: MV = Py. In the long run, a change...
2014-08-05
The most popular version of the Austrian Business Cycle Theory [ABCT] attempts to explain economic booms and busts as a function of central bank intervention into the economy (For the sake of conciseness, I omit endogenous ABCT). The central bank is said to expand the money stock, creating an unsustainable boom that distorts the relative prices of goods and arbitrarily lengthens the structure of...