The optimum monetary constitution : monetary integration and monetary stability

Digitised version produced by the EUI Library and made available online in 2020

Budget deficits and the exchange rate

Digitised version produced by the EUI Library and made available online in 2020

Die Definitionskriterien der Geldmenge: M1 M2, . . . oder Mx?

Criteria for Defining the Quantity of Money The study centres around the question of what conception of the quantity of money is most suitable for monetary theory and for monetary policy. Alternative “measures” are discussed. In the course of the analysıs, two different types of definition criteria are crystallized out. On the one hand, the properties of money are considered from the standpoint of those with a demand for money. 'T'he quantity of money is in demand for payment purposes and as a store of value. It can be (1) interpreted in the narrower sense as the quantity of means of payment or defined in the broader sense as the quantity of perfect stores of value. The latter may be in demand (2) for the purpose of “temporarily storing purchasing power” or (3) may be held as a component of wealth which serves as a means of “permanent storing of purchasing power”. Depending on the emphasis placed on the motives for holding “money”, the possibilities for the quantity of “money” to influence the economy vary. On the other hand, a completely different definition criterion can be developed from the standpoint of the supply of money. The latter is geared to (4) that quantity of money in the entire economy of which the outstanding amount is exogenous, so to speak, i.e. invariable and independent of the actions of individual economic entities. As we shall see, this is a definition of the quantity of money in the very narrowest sense. What aggregate quantity of money is represented by the “correct” definition of the quantity of money for monetary theory and monetary policy cannot be answered a priori. The definition of the quantity of money must satisfy two criteria: first, that “money” exerts a perceptible influence on the (real and/or nominal) magnitudes of the economy, and secondly, that a dividing line exists between “money” and other things which are “non-money”. So that quantity of money must be defined as adequate which exhibits a close substitution relationship between money and the purchase of goods and also a close substitution relationship between money and the purchase of assets

Weltinflation bei flexiblen Wechselkursen

Worldwide Inflation under Flexible Exchange Rates Basically, a system of flexible exchange rates can lead to the same, a lower or a higher world inflation rate than the world inflation rate in a system of fixed exchange rates. The question examined by the article is: under what special conditions is a system of flexible exchange rates more inflationary than a system of fixed exchange rates. If a certain type of inflation theory, namely the monetary explanation of inflation, is chosen as the relevant inflation theory, the question must be formulated: under what special behaviour assumptions within the system of flexible exchange rates is the growth rate of the world quantity of money greater than in the system of fixed exchange rates. This relatively higher growth rate of the world quantity of money may result from two categories of causes. On the one hand, the system of flexible exchange rates may lead in certain countries to diminished national monetary discipline. On the other hand, acting via certain automatic mechanisms or rigidities, that system in general may produce a systematic, higher world quantity of money. In particular, three reasons for a greater inflationary tendency are examined. The first reason is the desire to reduce the rate of unemployment by way of a higher inflation rate, in so far as the central bank believes in the existence of a Phillips curve and in so far as the optimal choice on the trade-off line results in a higher inflation rate. The second reason relates to a special type of behaviour by the central bank, which pursues an interest-oriented monetary policy of such nature that it permits no reduction of the nominal interest rate as long as the real interest falls in consequence of a higher inflation rate in the rest of the world, or that it endeavours to adjust its own nominal interest rate to that of foreign countries. The third reason is a possible reduction of the desired reserves to be held during the period of transition from a system of fixed exchange rates to one of flexible exchange rates, in so far as an attempt is made to achieve that reduction by way of a higher national price level