This chapter discusses four areas of monetary theory on which the ideas of Smith and Hume have left their imprint: (1) the overissue of bank liabilities, (2) the price-specie-flow mechanism (PSFM), (3) the need for a lender of last resort in a competitive banking system, (4) real-bills doctrine...

The 1960s and the 1970s saw an intense debate about the optimal monetary policy instrument, to which Poole, in 1970, and Sargent and Wallace, in 1975, made seminal contributions. According to the practitioners' narrative, these authors popularized the use of quadratic loss functions in monetary...

This paper focuses on simple normative rules for monetary policy that central banks can use to guide their interest rate decisions. Such rules were first derived from research on empirical monetary models with rational expectations and sticky prices built in the 1970s and 1980s. During the past...