Abstract
The purpose of the present paper is to examine the main changes that have occurred or that need to occur in monetary economics, and to do this in light of what Keynes told us 80 years ago in his General Theory, or even more than 85 years ago when he wrote the Treatise on Money. Inflation targeting and central bank independence are re-examined, as are the standard views of the money multiplier and of the fractional-reserve system. Unconventional monetary policies, although previously suggested by Keynes, appear to be a disguised return to Monetarism and the actual impact of quantitative easing must be understood in light of a theory of endogenous money with monetary implementation occurring within a framework where the target interest rate is set at the floor of the corridor.
Highlights
The purpose of this paper is rather simple
The purpose of the present paper is to examine the main changes that have occurred or that need to occur in monetary economics, and to do this in light of what Keynes told us 80 years ago in his General Theory, or even more than 85 years ago when he wrote the Treatise on Money
The paper is devoted to current monetary theory and policy, examining what seems to have been changed or been questioned as a consequence of what has happened during the crisis
Summary
The purpose of this paper is rather simple. The purpose of the present paper is to examine the main changes that have occurred or that need to occur in monetary economics, and to do this in light of what Keynes told us 80 years ago in his General Theory, or even more than 85 years ago when he wrote the Treatise on Money. The paper is devoted to current monetary theory and policy, examining what seems to have been changed or been questioned as a consequence of what has happened during the crisis. I will deal with the following points: the current goal of central banks, that is, inflation targeting, as well as alternative objectives, that is, financial stability and full employment; the concept of central bank independence when government intervention has been necessary; the relevance of endogenous money and its critique of the money multiplier and of the fractionalreserve banking system; the controversy over the use and usefulness of unconventional policies and quantitative easing. I conclude by recalling that Keynes himself, more than 80 years ago, when faced with a large recession, abandoned monetary policy and switched over to advocate expansionary fiscal policies
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