Money and the Natural Rate of Unemployment

Front Cover
Cambridge University Press, Apr 13, 2000 - Business & Economics - 308 pages
The prevailing view among economists and policy makers is that money has no impact on production in a longer term characterised by full price and wage flexibility and rational expectations. This book presents a revisionist view of monetary policy and monetary regimes. It presents several new mechanisms, indicating that money affects long-term production. The consequent policy implications are also discussed, including: the uses of monetary policy and monetary regimes in achieving macroeconomic goals; the impact of an independent central bank; the effects of a movement from floating exchange rates to fixed exchange rates in a monetary union. In addition to the theoretical and policy discussions the book also contains a comprehensive survey of the current state of scholarship in this area. Designed as a textbook for advanced undergraduate and graduate students in macroeconomics, labour economics and finance, this book will also appeal to scholars and policy-makers.
 

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Contents

Introduction
3
12 Channels for a monetary impact on natural production
4
13 Assumptions regarding the wage formation
7
14 Microeconomic foundation
8
15 The structure of the book
9
The literature
11
22 The view of monetary neutrality
12
23 The impact on natural unemployment of inflation
15
94 Determination of natural production
177
95 Policy implications
180
96 Summary and conclusion
181
Fiscal policy
183
102 The literature
185
103 Model specification
186
104 Determination of natural production and inflation
191
105 Policy implications
198

24 The impact on natural unemployment of monetary regimes
23
26 Summary and conclusion
34
The wage formation process
36
32 Basic assumptions
37
33 Trade union wage setting
43
34 Individual monopoly wage setting
50
35 Optimisation of consumption and leisure
56
36 The firms wage setting
57
37 A general preference function
60
38 Model modifications
64
39 Summary and conclusion
65
The impact of monetary policy and inflation
67
Imperfect integration of securities markets
69
42 Explanations of imperfect financial integration
70
43 Model specification
74
44 Determination of natural production
89
45 Policy implications
96
46 Summary and conclusion
101
Monopolistic competition in bank markets
102
52 The literature
103
53 Model specification
105
54 Determination of natural production
113
55 Policy implications
121
56 Other channels for an impact of bank deposits on bank lending
125
57 Summary and conclusion
127
Utility from securities holdings
128
62 The substitution between money and securities
129
63 Model specification
131
64 Determination of natural production
136
65 Policy implications
140
66 Summary and conclusion
142
Hysteresis effects from monetary policy
143
72 Hysteresis arising from capital accumulation
144
73 Other sources of hysteresis
155
74 Summary and conclusion
158
The impact of inflation on bank earnings
160
83 The impact of real bank earnings on the real economy
164
84 Empirical evidence
166
85 Summary and conclusion
167
The impact of monetary regimes
169
Centralised wage formation
171
92 The impact of inflation on the demand for goods
172
93 Model specification
174
106 The relationship between production and inflation
201
Price stability goal
203
112 Model specification
204
113 Determination of natural production
206
114 Policy implications
209
115 Summary and conclusion
210
Uncertainty concerning policy formation
212
122 Policy uncertainty affected by inflation
213
123 Model specification
214
124 Determination of natural production
217
125 Policy implications
219
126 Summary and conclusion
223
Policy uncertainty in a fixedbutadjustable exchange rate regime
225
132 Uncertainty regarding exchange rate adjustments
227
133 Model specification
228
134 Determination of equilibrium production
231
135 The dynamic adjustment
235
137 Summary and conclusion
238
The impact of uncertainty on wage setting
240
142 Model specification
241
143 Determination of natural production
244
144 Policy implications
247
145 Summary and conclusion
248
Policy implications
251
Policy implications of monetary nonneutrality
253
152 Money affects real activity
254
153 The optimal inflation rate
256
154 Should exchange rates be fixed?
257
155 Does an independent central bank increase welfare?
258
Microeconomic foundations
260
A2 The firms profit optimisation
261
A3 The households optimisation
263
A4 The government
270
A5 Foreign position
272
A6 Domestic demand
273
A7 Goods market equilibrium
276
A8 Shortterm dynamics
278
A9 Bank deposits
281
A10 The securities markets
283
A11 Summary and conclusion
284
Bibliography
285
Index
304
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