A Letter on Full-Reserve Banking and Friedman"s Rule in Chicago Tradition
Post-war Chicago School advanced a blend of pre-war Chicago and non-Chicago quantity theory, termed Monetarism. The preponderance of the non-Chicago element in this blend has been documented well by the relevant literature. This note maintains that monetarism"s only contribution to pre-war Chicago is the k-percent rule as a powerful countercyclical policy instrument, indeed, along with the cyclically-balanced-budget and no-open-market-operations rules put forth by pre-war Chicago. Early Chicago"s thinking was motivated by what nowadays is called Quantity Theory of Credit too, and a full-reserve banking rule was also included as a policy instrument. This rule was advanced from the viewpoint of no-bank-money-rule. By identifying bank money with commercial bank seigniorage, this rule is found here to be consistent with any value of the reserve ratio that nullifies such a seigniorage depending on the bank profit margin. This rule is also as price stabilizing as the k-percent rule, and this is the reason the contribution of the latter to Chicagoan policymaking is linked to its countercyclical rather than anti-inflationary power.
Year of publication: |
2014
|
---|---|
Authors: | Soldatos, Gerasimos T. ; Varelas, Erotokritos |
Published in: |
Credit and Capital Markets – Kredit und Kapital. - ISSN 2199-1235. - Vol. 47.2014, 4, p. 677-687
|
Publisher: |
Berlin : Duncker & Humblot |
Subject: | Chicago School | Full-reserve banking | No-bank-money locus-rule | Friedman"s rule | counter cyclically balanced budget |
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