Contrary to the strawman “classical” model of the textbooks, the original classical economists did not believe that money-stock changes affect only the price level and not real output and employment. Most classicals saw money as having powerful short-run real effects and perhaps some...

Traditionally, central banks seeking to stabilize general prices have followed policies similar to those advocated by Knut Wicksell: when prices are higher that desired, raise interest rates to exert downward pressure on prices, and conversely. Despite the historical predominance of interest...

Exogenous supply disturbances such as the recent Iraqi oil shock deliver a double blow to the economy. By rendering material or energy inputs scarcer and dearer, they raise production costs per unit of output. In so doing they discourage production and raise product prices. The resulting rise in...

The rise of Milton Friedman's version of monetarism in the 1960s and early 1970s provoked an antimonetarist backlash culminating in the late Nicholas Kaldor's The Scourge of Monetarism (1982). Friedman stressed the ideas of exogenous (i.e., central bank determined) money, money-to-price...

The celebrated Wicksellian theory of the cumulative process is a landmark in the history of monetary thought. It gave economists a dynamic, three-market (money, credit, goods) macromodel capable of showing what happens when banks, commercial or central, hold interest rates too low or too high....

One of the oldest surviving economic doctrines is the quantity theory of money, which in its simplest and crudest form states that changes in the general level of commodity prices are determined primarly by changes in the quantity of money in circulation