This paper reexamines the debate over whether the United States fell into a liquidity trap in the 1930s. We first review the literature on the liquidity trap focusing on Keynes's discussion of "absolute liquidity preference" and the division that soon emerged between Keynes, who believed that a...

The rise of inflation in 2021 and 2022 surprised many macroeconomists who ignored the earlier surge in money growth because past instability in the demand for simple-sum monetary aggregates had made these aggregates unreliable indicators. We find that the demand for more theoretically-based...

Standard explanations of the bivariate correlation of money and income attribute this correlation to an inability of agents to discriminate in the short run between real and nominal sources of price shocks. This paper is an empirical comparison of the standard explanation with two alternatives:...

Food Stamps represent nearly $11 billion of personal income in the United States. The coupons that are issued to represent the purchasing power available to recipients are also reserves for the commercial banking system.This study asks how closely these coupons are substitutable for what is...

In this paper we intend to survey and suggest the theoretical framework of the important aspects of causality detection with the purpose of conveying to the reader the essential features and the different forms in which inferences may be drawn from given data. Section II presents the basic...

This paper studies the possibility of using the broad monetary aggregate M2 to target the quarterly rate of growth of nominal GDP. Our findings indicate that the Federal Reserve could probably guide M2 in a way that reduces not only the long-term average rate of inflation but also the variance...

Standard models of aggregate demand treat money and credit asymmetrically; money is given a special status, while loans, bonds, and other debt instruments are lumped together in a "bond market" and suppressed by Walras' Law. This makes bank liabilities central to the monetary transmission...

Fluctuations of business activity in the United States clearly have their monetary and financial side, but these aspects of U.S. economic fluctuations exhibit few quantitative regularities that have persisted unchanged across spans of tine over which the nation's financial markets have...

This paper examines the ability of a simple stylized general equilibrium model that incorporates nominal wage rigidity to explain the magnitude and persistence of the Great Depression in the United States. The impulses to our analysis are money supply shocks. The Taylor contracts model is...

We test the hypothesis that the Great Contraction would have been attenuated had the Fed not allowed the money stock to decline. We do so by simulating a model that estimates separate relations for output and the price level and assumes that output and price dynamics are not especially sensitive...