Quantity Theory of Money

En este artículo se demuestra que la ecuación de Cambridge de demanda por dinero proviene de una función de utilidad tipo Cobb-Douglas. En consecuencia, la valoración de las unidades monetarias marginales es decreciente para el cuantitativismo, con lo cual se da una base microeconómica sólida a la explicación del fenómeno inflacionario –en este paradigma- como uno de índole dineraria.

This article demonstrates that the Cambridge equation of demand for money comes from a Cobb-Douglas utility function. Consequently, the valuation of marginal monetary units is decrescent for the quantity theory, which gives a solid microeconomic basis to the explanation of the inflationary phenomenon -in this paradigm- as one of a monetary nature.

Information technology has the potential to decrease substantially, if not completely, the demand for base money. This poses a problem for central banks as it seemingly eliminates a role for monetary policy, at least in the traditional sense. Recently, it has become commonplace to consider the role of monetary policy and the determination of the price level without any reference to money. The two predominant methods of analysis in this regard are the New Keynesian framework articulated by Woodford (2003) and the scal theory of the price level as described in Cochrane (2005). Lost in the literature on " cashless" economies is the work of Jürg Niehans (1982) who, driven by the perplexities of the Eurodollar market, considered the role of monetary policy and price level determination in the context of a neoclassical macroeconomic model. This paper contrasts the framework and conclusions of Niehans with the contemporary approaches. It is argued that Niehans successfully anticipated the conclusions of the scal theory of the price level.

We review the theories on how liquidity affects the required returns of capital assets and the empirical studies that test these theories. The theory predicts that both the level of liquidity and liquidity risk are priced, and empirical studies find the effects of liquidity on asset prices to be statistically significant and economically important, controlling for traditional risk measures and asset characteristics. Liquidity-based asset pricing empirically helps explain (1) the cross-section of stock returns, (2) how a reduction in stock liquidity result in a reduction in stock prices and an increase in expected stock returns, (3) the yield differential between on-and off-the-run Treasuries, (4) the yield spreads on corporate bonds, (5) the returns on hedge funds, (6) the valuation of closed-end funds, and (7) the low price of certain hard-to-trade securities relative to more liquid counterparts with identical cash flows, such as restricted stocks or illiquid derivatives. Liquidity...

Gross Domestic Product(GDP) is a widely used measurement of economic growth representing the market value of all final goods and services produced by a country within a given time. In this paper we question the assumption that GDP measures production, and suggest that in reality it merely captures changes in the rate of expansion of the money supply used to measure the price data it is derived from. We first review the Quantity Theory of Money $MV=PT$, and show that the Velocity of Circulation of Money(V) does not affect the price level as claimed, as it is also a factor of the quantity of transactions(T). It then follows directly that attempts to measure total production from any form of price data as the GDP measurement does, will necessarily be confounded by the inverse relationship between prices and the quantity of production, which requires that as the total quantity of production increases, prices will drop. Finally, in support of this claim we present an empirical analysis o...

Im nicht akademischen Bereich wird in Deutschland häufig die These vertreten, die Geldmengenausweitungen der EZB müssten zwangsläufig zu einer hohen Inflation oder gar Hyperinflation führen. Dieser Aufsatz geht der Frage nach, ob und wie eine hohe Inflation oder Hyperinflation in der entwickelten Welt, speziell in der Eurozone, entstehen könnte. Dabei stützt sich die Arbeit auf theoretische Überlegungen zum Thema „Hyperinflation und Inflation“ und entwirft ein mögliches Szenario, in dem eine solche Entwicklung tatsächlich Realität werden könnte. Die Hypothese in dieser Arbeit lautet, dass die größte Gefahr in der Eurozone ein möglicher Ausstieg von Italien und/oder Spanien aus der Währungsunion darstellt. Covid-19 hat das Risiko für eine sehr unterschiedliche wirtschaftliche Entwicklung in verschiedenen Ländern der Eurozone erhöht. Italien und Spanien müssen mit dramatisch steigenden Staatsschulden, einem schwachen Wirtschaftswachstum und Schwierigkeiten auf dem Arbeitsmarkt rechnen. Das Hauptproblem wäre wohl nicht, dass die Eurozone Italien oder Spanien nicht helfen würde, sondern dass der Bevölkerung in diesen Ländern die Hilfsmaßnahmen nicht reichen könnten. Die Eurozone zu verlassen wird in Anbetracht dessen zu einer ernst zu nehmenden Option. Wenn diese Länder aus dem Euro austreten sollten, würde man sich wahrscheinlich für einen geordneten Ausstieg entscheiden. Das heißt, Italien würde nach einer einmaligen Abwertung dem EWS II beitreten und nicht aus der EU austreten. Käme es nicht zu einem geordneten Ausstieg, dann wären ungeordnete Verhältnisse die Folge. Nur in einem solchen Szenario bestünde wirklich das hohe Risiko einer Hyperinflation.

This paper aims at suggesting a new interpretation of Edwin Walter Kemmerer's quantity theory of money as it appears in his Money and Credit Instruments in Their Relation to General Prices (1903, PhD thesis; and 1907, first edition of the book). In that work, he proposes an equation to determine the price level as the ratio of its monetary and real determinants. The paper addresses Kemmerer's key question of how money and credit are related to general prices. Two directions are investigated. Firstly, I explain Kemmerer's quantity theory by means of his exchange equation and how his interpretation may have influenced Fisher's economic theory. Secondly, I consider his test of the quantity theory on the US economy and I show the empirical validity of his theory. It is argued here that both elements give a key contribution to finding a new interpretation of the deepest meaning of Kemmerer's approach to quantity theory.

Il volume propone una ricostruzione avanzata, chiara e storicamente fondata del principio della domanda, seme della macroeconomia e delle politiche economiche aggregate.
Da inizio Novecento, si sono confrontati due principali modelli di politica economica, il primo alquanto impropriamente definito keynesiano, in realtà con radici remote e varianti rilevanti, il secondo incentrato sul ruolo esclusivo dell’offerta e sulla neutralità della moneta. Il volume svolge una confutazione storica del consensus macroeconomico affermatosi a fine Novecento, che ha inibito il demand management; e ricostruisce le solide ragioni empiriche di lungo periodo del formarsi della visione incentrata sul principio della domanda, dei successi del demand management nella Golden age della crescita, dei deludenti risultati associati ai recenti regimi di policy. Vengono individuate e colmate le lacune del modello keynesiano, relative a dinamica dei prezzi, incerto effetto sulla crescita ed esplosione dei debiti pubblici; e vengono approfonditi sviluppi storici e teorici che delineano un modello di policy derivato dalla fenomenologia storica capace di assicurare crescita sostenuta, sviluppo di aree depresse, perequazione distributiva, equilibrio delle finanze pubbliche, elevati tassi di investimento e occupazione, controllo delle dinamiche dei prezzi, articolazione regionale della politica monetaria.
Elio Cerrito è nato a Napoli nel 1952 e si è formato presso la Federico II e l’Ecole des Hautes Etudes en Sciences Sociales. Ha svolto la sua attività presso l’Ufficio Ricerche Storiche e il Servizio Studi della Banca d’Italia. È autore di numerosi saggi di storia e teoria economica.
Napoli, Edizioni Scientifiche Italiane, 2019, p. 232, www.edizioniesi.it

This paper uses a two-sector model to estimate the relationship between prices, money, and the exchange rate in Madagascar during the period 1982-2004. The estimated model, using quarterly data, finds a stable long-run relationship among monetary aggregates, domestic prices, real income, and foreign interest rates. In addition, the error-correction model shows that changes in the monetary aggregates, the exchange rate, and foreign interest rates exert a significant impact on inflation. The results also suggest that a disequilibrium in the money market has a lasting impact on inflation. The paper concludes with policy recommendations.

Muslim scholars of the sixteenth century continued the tradition of writing on economic issues. Their work, however is characterized by the period's overall feature of imitation and repetition and thus reflects hardly any advancement of monetary thought since the works of earlier Muslim scholars. This is clearly reflected in the two representative treatises on money: those of al-Suyuti (d. 1506) written at the beginning of the century, and al-Tumurtashi (d. 1598), written at its the end. History of Islamic economic thought is a well-researched area of Islamic Economics. To the best of our knowledge, however, all such research stopped at the end of the fifteenth century – the age of Ibn Khaldun and al-Maqrizi. The present paper seeks to advance this research and intends to investigate monetary thought of Muslim scholars during the sixteenth century (corresponding to tenth century Hijrah, exactly from 906 AH to 1009 AH). Beginning with an overview of earlier monetary thought in Is...

Inflation has been the major global economic problem for most economies throughout the world over the last three decades. It affects individuals, businesses and governments. Many competing hypotheses have been advanced in the literature to explain its causes and give ...

Building on Giraud & Tsomocos (2009), we develop a model of non equilibrium international trades with incomplete markets. Trades occur in continuous time, both on international and domestic markets. Traders are assumed to exhibit locally rational expectations on future prices, interest rates and exchange rates. Although currencies turn out to be non-neutral, if their stock grows sufficiently rapidly and if agents can trade assets during a sufficiently long period, the world economy converges in probability towards some interim constrained efficient state. Moreover, a random localized version of the Quantity Theory of Money holds provided the economy is not trapped in a liquidity hole. The traditional theory of comparative advantages, however, turns out to be challenged by international capital mobility.

Malawi will be introducing a higher denominated currency note of K5000.00. There are mixed reactions on whether its introduction will contribute to higher inflation in the country. Going through the literature review we note that it was traditionally believed by economists that inflation will not rise but looking at some local documents we find that it has been rising ever since there is an introduction of a new higher currency note. Using the Quantity Theory of Money we looked at some events that could lead to higher inflation and recommended that fiscal discipline is essential to control inflation. Introduction of higher value note than K5,000.00 is also an option.

We introduce an approach for the empirical study of the quantity theory of money (QTM) that is novel both with respect to the specific steps taken as well as the general methodology employed. Empirical studies of the QTM have focused directly on the relationship between the rate of change of the money stock and inflation. We believe that this is

This article investigates the post-1990 link between broad money
growth and inflation in 16 full-fledged inflation-targeting regimes
and four benchmark non-inflation-targeting regimes. This study
employs the Christiano-Fitzgerald band-pass filter and continuous
wavelet transform to analyze the co-movements across operational
horizons and time. According to the band-pass filtering techniques,
the link between money growth and inflation was weak and statistically
nonsignificant over the investigated period: from 1990 onwards.
The wavelet analysis demonstrated significant causality running from
money growth to inflation, and strong significant co-movements
between the two variables around the Great Recession at a typical
business cycle frequency. This finding suggests that policymakers may
need to respond to the short-run surges in money growth by reducing
money growth rates. The empirical findings support the proposal that
policymakers should return to a monetary framework that controls the
money supply.

This paper sets out a tractable model which illuminates problems relating to individual bank behaviour, to possible contagious inter-relationships between banks, and to the appropriate design of prudential requirements and incentives to limit `excessive' risk-taking. Our model is rich enough to include heterogeneous agents, endogenous default, and multiple commodity, and credit and deposit markets. Yet, it is simple enough to

Recent data on velocity of money show that there is a decline in time. This observation leads one to rethink about Quantity Theory of Money. Can this decline be the cause of recent trends of fall in prices and demand deficiency with an assumption of constant money supply? The aim of this paper is to find an answer for this question by Agent Based Modelling (ABM). The findings show that indeed, fall in prices and demand deficiency are due to the decline in velocity of money.

The effects of inflation on the economic life of the citizenry of a country and the theoretical causes have led to numerous researches in the area. Annual inflation rates in Ghana since 1990 show a fluctuating trend depicting how unsuccessful various governments and policy-makers have battled with changes in the general price level. The theoretical and empirical literature on inflation seem to suggest that the causes of inflation are multifaceted, and time specific, as well as dependent on the level of development of a country. This paper attempts to explore some of major triggers of inflation Ghana for decision-making and implementation as well as adding to existing researches in the area. It uses multiple linear regression analysis based on structural equation modelling through path analysis. It concludes that interest rate, proxied by Treasury bill rates, is the only major variable that has a positive and significant effect on inflation in Ghana with regard to the time period studied. Factors such as GDP growth, market capitalisation, gross fixed investment, and foreign direct investments proved insignificant in influencing inflation in Ghana. This study lends support to the fact that inflation reacts positively to changes in interest rates, therefore, governments and policy-makers must consider it critical when pursuing pro-poor growth policies.

Inflation has been the major global economic problem for most economies throughout the world over the last three decades. It affects individuals, businesses and governments. Many competing hypotheses have been advanced in the literature to explain its causes and give the appropriate remedial policies. One of these hypotheses is central to the quantity theory of money. According to this hypothesis, inflation results solely from a maintained expansion of the money stock at rates in excess of increases in the amount of money demanded in the economy. The paper examines the money-price relationship in the Three Maghreb countries (namely Algeria, Morocco and Tunisia) using Granger causality test. The results do not tend to support the quantity theorist’s view that money and prices have a long-run relationship, i.e., they do not tend to drift apart in the long run. However, as suggested by Granger (1986) money and prices could still cointegrate if other variables, which may have influenced...

Building on Giraud & Tsomocos (2009), we develop a model of non equilibrium international trades with incomplete markets. Trades occur in continuous time, both on international and domestic markets. Traders are assumed to exhibit locally rational expectations on future prices, interest rates and exchange rates. Although currencies turn out to be non-neutral, if their stock grows sufficiently rapidly and if agents can trade assets during a sufficiently long period, the world economy converges in probability towards some interim constrained efficient state. Moreover, a random localized version of the Quantity Theory of Money holds provided the economy is not trapped in a liquidity hole. The traditional theory of comparative advantages, however, turns out to be challenged by international capital mobility.

The effects of inflation on the economic life of the citizenry of a country and the theoretical causes have led to numerous researches in the area. Annual inflation rates in Ghana since 1990 show a fluctuating trend depicting how unsuccessful various governments and policy-makers have battled with changes in the general price level. The theoretical and empirical literature on inflation seem to suggest that the causes of inflation are multifaceted, and time specific, as well as dependent on the level of development of a country. This paper attempts to explore some of major triggers of inflation Ghana for decision-making and implementation as well as adding to existing researches in the area. It uses multiple linear regression analysis based on structural equation modelling through path analysis. It concludes that interest rate, proxied by Treasury bill rates, is the only major variable that has a positive and significant effect on inflation in Ghana with regard to the time period stu...