Nick must have come back from his American adventure even smarter than when he left, as he has just posted an excellent essay on the problem with relying on interest rate targets. First I’ll point out a few passages that I particularly liked, and then I’ll provide my thoughts on a few questions that he raised at the end. Let’s start with how he concludes his discussion of the classical dichotomy.
If you take this homogeneity insight, and add the assumption that the supply of money is exogenous, you get the Quantity Theory of Money (a change in the supply of money will cause an equi-proportionate change in all nominal variables), and the Neutrality of Money (a change in the supply of money will affect no real variable).
Post-Keynesian horizontalists (and we are all horizontalists now, unfortunately, because that’s the underlying problem) reject the Quantity Theory because they reject the assumption that the supply of money is exogenous. But that misses the point. A revised Quantity Theory can be re-formulated taking any nominal variable as exogenous — the price of gold, or nominal GDP futures, for example. The homogeneity insight does not depend on any definition of money supply being exogenous.
Den ganzen Beitrag lesen…
