According to the classical view, an economy's lender of last resort should be its central bank. For brief periods of time, the bank might suspend convertibility in order to provide the liquidity needed to support the domestic credit market. Recent experience of financial crises demonstrates the...

New Keynesian models of monetary policy assign no role to monetary aggregates, in the sense that the level of output, prices, and interest rates can be determined without knowledge of the quantity of money. We evaluate the empirical validity of this prediction by studying the effects of shocks...