Monetary economics

Monetary theory is a discipline of economics, are examined in the nature and functions, value and effects of money. Sub-areas of monetary theory include the theory of money demand, the theory of the money supply (see money creation ), the statement of the monetary policy transmission mechanism, inflation theory, the interest theory and the theory of monetary policy.

• 2.1 Pre-Modern Monetary Theory
• 2.2 Classical theory of money
• 2.3 Keynesian monetary theory
• 2.4 monetarism
• 2.5 Neoclassical Monetary Theory
• 2.6 New Keynesian monetary theory

• 4.1 Introductory Textbooks
• 4.2 Textbooks Advanced
• 4.3 Compilation
• 4.4 Other Literature

Modern Monetary Theory

Definition of money

As money is referred to anything that is accepted as means of payment in the economy. Nowadays there are notes and coins are used (cash) and credit balances on bank accounts ( cash) as payment. Banknotes and coins are used in particular for smaller amounts everyday shopping. Balances on bank accounts can be transferred by bank transfer, direct debit, check or credit card; this is referred to as a cashless payment. An important feature of today's money is that it has no real material value. The acceptance of today's cash and bank balances in commercial transactions based on both the confidence that the money will be accepted as payment in the future, as well as on state coercion ( " legal tender ").

Functions of money

Money has three functions in the economy of everyday life. First, it serves as a medium of exchange. Without money, it would be much more difficult to conclude exchange transactions. A baker who wants meat, would find a butcher who wants to have an appropriate amount of bread at the same time, so that an exchange transaction takes place. A generally accepted means of payment causes faster exchange partners are found and thus the cost of finding a replacement partner can be reduced. Also, most people are concerned about the value of money used daily better informed than other products offered by third parties, so that it is not necessary to determine tedious before the exchange value of the consideration.

Secondly, money is a store of value. For the safekeeping of all property available in modern economies Several options are available, both in physical form ( valuable goods, such as gold, or real assets, for example ) or as the form of financial ( cash and bank deposits, bonds, shares, mutual fund, insurance claims or claims from pension provisions, etc.).

Thirdly, expressed in monetary values ​​of various goods and services can be well compared. In four of goods, one of which is used as money, there are exactly three cash prizes. Without money as a general measure of value ( processing unit) there were a total of 6 price ratios ( price of good 1 in units of the goods 2, 3 and 4; price of good 2 in units of the goods 3 and 4; price of good 3 in units of Good 4 ). Without money, the situation is so much confusing, so it is difficult to make economic decisions.

A fourth function is not described in the literature, but is immanent. Money is created by commercial banks or non-banks into debt. For these liabilities, they have to pay interest. In order to this, they have to request money. So money has a driving function.

The functions of money justify the demand for money. The demand for money as a medium of exchange depends primarily on the amount of the intended exchange volume and the amount of interest on the go without, if one considers instead of interest-bearing assets Cash ( at high interest rates, it is advantageous, on average, less money and more interest earning assets to and keep at low interest securities often sell in return, to obtain for the purchase of goods and services, money). The demand for money as a store of value depends primarily on the amount of total assets, the level of return of alternative assets and of the risk to which the possession of money in the form of inflation compared to the risk of other assets with them. If the official currency of a country no longer fulfills the functions of money due to rapid inflation (inflation), it becomes less and less in demand and real goods or foreign currency take over the functions of money. This process is known as currency substitution.

Emergence of money

To understand the emergence of modern money, two types must be distinguished from money, namely central bank money and deposit money. Cash and deposits (deposits) of commercial banks at the Central Bank provide central bank money dar. central bank money gain the banks by refinance at the central bank. Can be obtained from the Central Bank, for example, a loan against deposit of securities at interest.

Deposits of non-banks ( households, enterprises and government) in commercial banks are carrying money. Paper money also occurs when a bank grants a loan to a household and crediting the loan amount to the bank account of each customer. The ability of a commercial bank lending depends on the stock of base money from ( on the asset side ) of these commercial bank. On the liabilities side, since the capital requirements of the Basel rules (from 1988 ) the lending possibility depending on the risk level, limited.

If a customer on the loan amount by transfer to another bank or by cash withdrawal, so this commercial bank may correspondingly less credit awarded ( unless funds flow back again from other commercial banks lending - Lending in lockstep ).

Relationship between money and inflation

Under inflation refers to the increase in the general price level. Due to the rise in the general price level, the money loses value. The percentage rate of change of the price level is called inflation. It is empirically well established that over the medium and long term, a high positive correlation between the growth rate of the money supply and the inflation rate. Very high inflation rates, so-called hyperinflation ( such as the financing of World War I following German inflation from 1914 to 1923 ), were always ( in relation to stagnating or declining quantity of goods ) and usually caused by a strong expansion of money currency substitution. At comparatively low inflation rates (below 10 percent per year ), however, is controversial, the extent to which associated with inflation monetary expansion is the cause or result of inflation.

History of monetary theory

The history of monetary theory is closely intertwined with the history of macroeconomics and the history of money. The development of monetary theory can be divided into two phases: pre-modern monetary theory, classical monetary theory, Keynesian monetary theory, Neoclassical synthesis, monetarism, Neoclassical Monetary Theory and Keynesian monetary theory.

Pre-Modern Monetary Theory

For example, his dislike of the use of gold and silver, or his idea of ​​a local currency that would be worthless abroad - - Although Plato no elaborate theory of money is to demonstrate its monetary policy guidelines indicate that he believed that the value of money, regardless of its material substance is. Aristotle, however, took exactly the opposite theory. Joseph A. Schumpeter speaks in the first case of " Chartal Theory", in the other case of Metallismus or " metallistischen theory " of money.

In the Middle Ages money was central question of financing, in particular the military -related, issues of territorial rulers, which was often denied by devaluation or debasement. The advocated by Thomas Aquinas or Tholomeus of Lucca opinion that money was owned by the ruler and can be fixed in its value free of him, was transformed to the effect that it belonged rather to the general public and the monetary value is thus to determine from the stands. This view was put forward at the accentuatedly of Nicole Oresme in his written 1358 Tractatus de mutatione monetarum. Gabriel Biel took Oresme arguments and adapted it to the prevailing conditions, giving priority to not quite so rigorously on the monetary stability persisted as Oresme.

Classical theory of money

The phase of the classical monetary theory lasted from about 1800 to 1936. The essential feature of classical monetary theory was the assumption that the goods economic (real) and the monetary economic ( monetary) sector of the economy were independent of each other (classical dichotomy between real and monetary sector). Money had after the classic view only task is to facilitate the exchange of goods and services ( medium of exchange function of money ). Consequently, the monetary policy was at that time also essentially is to issue banknotes and the convertibility of bank notes into gold ( or silver ) to ensure. The classical quantity theory was a result of this view. It says that a change in the money supply directly proportional effect on the overall price level, while real aggregate income ( the order changes in price -adjusted value of all goods and services produced ) is completely independent of the level and change in the money supply. Karl Marx made ​​to the theory of money through its value-form analysis in the capital a vielrezipierten up into the 20th century contribution.

Keynesian monetary theory

The publication of The General Theory by John Maynard Keynes is a milestone in the history of monetary theory dar. With the General Theory Keynes undertook, inter alia, the attempt to explain in the Great Depression of the 1930s in hitherto unimaginable proportions observed unemployment. While there were no (involuntary ) unemployment in the theory of the classics, showed Keynes, that it can come in a market economy to serious and persistent unemployment under certain conditions. He built his argument on a simultaneous analysis of real (income and employment) and monetary ( money supply and interest rates ) variables and thus left the framework of the classical dichotomy between real and monetary sectors. There was talk of a scientific revolution.

The distinction made by Keynes analysis was essentially verbal nature. In the following years it was formalized and extended. John Richard Hicks has led the Keynesian argument in a mathematical multi-equation system that macroeconomics had a strong influence for several decades under the name IS- LM model. A part of the IS-LM model is the Keynesian theory of money demand (liquidity preference theory ). It indeed is an extension of the classical point of view, as now, a second function of money, namely the store of value function, was considered. The formalization was the basis for the Keynesian -oriented monetary and fiscal policy of the 1950s and 1960s. There was the idea that the state could achieve sustained positive effects on aggregate production and employment through a fine control of aggregate demand. However, this fine-tuning did not have the desired effects. A major problem was that the consequences for the rate of inflation in the context of Keynesian monetary theory were not sufficiently taken into account.

The Keynesian revolution was not without counter-revolutions. The three major counter-revolutions were monetarism, the Neoclassical Macroeconomics and the real -business -cycle theory.

Monetarism

Monetarism, are among its most important representatives Karl Brunner, Milton Friedman and Allan Meltzer, sees in the money supply, the main cause of economic fluctuations. Economic fluctuations are largely preventable if the central bank to a uniform monetary expansion in the amount of the average long-term growth rate of real gross domestic product hinwirkt ( monetary rule according to Friedman ).

Neoclassical theory of money

The Neuklassiker whose most important representative Robert E. Lucas, Thomas Sargent and Neil Wallace, are extended monetary theoretical analysis especially to the concept of rational expectations. In rational expectations flowing all available information in the formation of expectations. This has the consequence that systematic policy actions are anticipated and have no effects on the real overall economic development. Systematic monetary policy that responds in a predictable way on macroeconomic fluctuations has in the model framework of Neuklassiker no real economic effects ( Politikineffektivität ), but affects only the rate of inflation. Real economic effects, monetary policy can achieve measures therefore only by surprisingly expansive ( expansive ) or restrictive ( restrictive ).

On Robert Lucas, the demand for a microeconomic foundation of macroeconomic economic models goes back ( micro-foundation of macroeconomics ). The relationships between macroeconomic variables change when changing the economic environment, ie even if the monetary policy changes. Therefore, observed regularities can not be readily as the basis for the simulation of the effects of monetary policy actions are ( Lucas critique ) in the past. Rather, the effects of monetary policy (and other economic policy ) measures are derived from models that represent the behavior of individual market participants, taking into account the particular environment. Such models form, as the laboratory of the macroeconomists; after all, can Macroeconomics perform only in rare and exceptional cases experiments to study the effects of economic policy measures.

The Neuklassiker have further developed the theory of money, especially in terms of methodology. Rational expectations and microeconomic foundation are now an integral part of monetary theory. However, the substantive conclusions about the effectiveness of monetary policy could not be maintained, particularly because the actual markets are not as flexible and perfect, as was assumed in the neoclassical.

Keynesian monetary theory

The New Keynesian monetary theory combines the methodological advances in neo-classic ( and especially the real -business -cycle theory ) with the analysis of the observable in reality imperfections on various markets. It is therefore also called a New Neoclassical Synthesis. For the monetary theory significant market imperfections particularly slow price adjustment are ( rigid prices), imperfect competition in product markets and asymmetric information on financial markets. These imperfections have a big impact on the overall economic development:

• Imperfections lead in general to the fact that the market outcome is not efficient. This means that there is room for welfare-enhancing economic policies and that monetary policy is not ineffective.
• Imperfections alter the effects of economic shocks on the macroeconomic development. Price rigidity leads for example to the fact that monetary shocks have real economic consequences and the classic dichotomy of monetary and real sector is not given.
• Imperfections can be a source of additional shocks. Asymmetric information and the associated problems have an impact, for example on the real economic equilibrium.

The New Keynesian monetary theory is methodologically the basis for the modern short-to medium-term monetary theoretical analysis. It has also influenced the practice of many central banks monetary policy sustainable. In particular, it provides an explanation of the monetary transmission process, ie the transmission of monetary policy actions on the economy.