Growth Rate Of Money Supply Research Articles

The monetization process in China during the economic reform

It is well known that during the decade-long economic reform in China, the growth rate of money supply has been consistently greater than the sum of the real GNP growth and the inflation rate. Where did the money go? The present paper tries to answer this question with an introductory analysis of the monetization process. The preliminary results suggest that the Chinese economy was monetized rapidly during the period 1979–1984, in which the introduction of the responsibility system in the agricultural sector, the astonishing growth of the township and village enterprises and private business brought in extraordinary demand for currency. Consequently, most of the “excess money” was absorbed by the newly-monetized economy and inflation was moderate in this period. However, since 1985 the monetization process has been slowed down significantly. The economy could no longer absorb the excess money. The excess money supplies above and beyond the growth rate of the real GNP have mainly resulted in inflation.

Relative Agricultural Prices and Monetary Policy

AbstractAn imperfect information, rational expectations model of relative price determination is presented. This model provides an econometric specification for testing for a causal relationship between money and the relative prices of agricultural commodities. Test results indicate that variations in the growth rate of the nominal money supply (whether anticipated or unanticipated) have not been an important influence on the average level of prices received by farmers relative to other prices in the economy over the period 1951–85.

The impact of stochastic and deterministic trends on money–output causality: A multi-country investigation

This paper applies a statistical approach used by Stock and Watson (1989) in their study of U.S. money–output causality to analyze money–output relationships in five industrialized countries. In extending Stock and Watson's paper, we focus on whether money supply growth rates in our international sample seem to be characterized by deterministic time trends, and whether the practice of removing these trends sharpens statistical inference. We find evidence of deterministic trends in money supply growth in three of the five countries, but find that removin the time trends affects inference only in the U.S. sample. Moreover, the use of log-differenced data in two-, three-, and four-variable VARs in these countries provide very little information regarding macroeconomic relationships.

OPTIMUM MONETARY GROWTH IN A CLOSED AND AN OPEN ECONOMY

This paper reexamines the efficacy of the constant money supply growth rule advocated by M. Friedman (1960) and S. Simons (1948) and examined by R. J. Barro (1976). Its monetary growth rule is somewhat different from Barro's in that an expansion in money supply is corrected by a portion of the monetary surprise of the previous period, and the rate of monetary growth varies stochastically. It discriminates between an expansion in the level and the growth rate of money supply, whereas Barro's model treats only the former. The result of these changes is to reverse and modify some of Barro's conclusions. Copyright 1988 by Blackwell Publishers Ltd and The Victoria University of Manchester

Parameter Estimation for a Nonlinear Macroeconometric Model of the United States Based on Optimal Corporate Pricing and Production

A low-order macroeconometric model of the United States is derived by using a theoretical basis for its structure. Analysis of historical economic data is used to establish the dynamic aspects of the relationships and to estimate model parameter values. Wealth is modelled as the accumulation of production with losses due to depreciation. Demand is seen as proportional to real wealth and affected by real interest rate and inflation. Prices are confirmed to be proportional to money supply and affected by changes in the monetary exchange rate. Interest rate tracks inflation rate and is affected by changes in the growth rate of money supply. It is recognized that the long term growth rate of the economy tends to equal the real interest rate. The inherently nonlinear macroeconometric model requires repeated applications of different parameter estimation techniques. The model responses are compared to time histories of actual economic variables

THE GOLD STANDARD AND ECONOMIC STABILITY: A COUNTERFACTUAL EXPERIMENT

Growing dissatisfaction with the record of discretionary monetary policy in the United States in the past decade has led to interest in alternative monetary arrangements to restore price level and real output stability, and to allow the economy to grow to its potential, unfettered by macro instability. Several arrangements have come to the fore. These include: (1) a return to the classical gold standard—fixing the dollar price of gold and allowing the money supply to be governed by movements in the nation's monetary gold stock; (2) the Friedman (1960) rule—constraining the monetary authorities to establish and maintain a steady and known growth rate of the fiduciary money supply; (3) Irving Fisher's (1920) compensated dollar scheme—altering the official price of gold and hence the value of the monetary gold stock to stabilize some measure of the price level.

Unemployment, Real Wages and the Money Supply in Australia*

Many observers have attributed the high unemployment experienced in Australia in the 1970s to the rises in real wages which have occurred in the decade. An alternative or additional hypothesis is that unemployment has resulted from policy directed at controlling inflation and that this has been exacerbated by the occurrence of adverse external factors, particularly bul not solely the oil price shocks, which have made inflation more difficult than otherwise to control. The results of econometric tests suggest that a significant portion of fluctuations in the unemployment rate can be explained by real wage movements, and as well monetary policy through its effects on the real money supply also seems to affect unemployment. Both real wage rises and monetary restrictions appear to have contributed to the jump in unemployment in 1974–75, and since then the continuing high and rising unemployment rate is closely associated with the low growth rate of the real money supply.

The Battle against Inflation: The Bank of Canada and Its Critics

The recent analyses of Canadian macroeconomic policies by Barber and McCallum (1980, 1981) and by Donner and Peters (1979, 1980) touch on a wide array of issues and hence have provoked an almost equivalent variety of comments and rebuttals. However, the central points of the twin pairs of authors can be expressed very simply: the monetary restraint policies of the Bank of Canada have been tried for over five years, they have failed to control inflation while simultaneously causing severe real output and employment costs, and therefore they should be abandoned in favour of some (not entirely clear) alternative approach. Unfortunately, the critics spend much more effort on laments about the poor economic performance of the last five years, than they do identifying in just what way the conceptual foundations of monetary restraint were flawed. The present paper argues that while the reductions in inflationary pressures have been disappointingly modest, the fault does not lie with the analytic and empirical arguments used to support the monetary restraint programs. The strategy of restraint was, and remains, sound. In particular, the critics have not demonstrated any good reason to reject the widely-accepted conclusion that a reduction in money supply growth rates was a necessary condition for any substantial lowering of the inflation rates prevailing in 1974-75. The policy failure has not been with the strategy of restraint, but with its tactical implementation. The apparent unwillingness to distinguish between the two issues has caused the critics to pursue many false issues and to advocate alternative policies that are simply untenable.

Monetary policy and long-term interest rates: An efficient markets approach

This paper is an application of efficient markets theory to analyze empirically the relationship of money supply growth and long-term interest rates. This approach has the advantage over calier research on this subject in that it imposes a theoretical structure on this relationship that flows easier interpretation of the empirical results as well as more powerful statistical tests on the interest of ascertaining the robustness of the results, many different empirical tests are carried out in this paper, and they uniformly do not support the preposition that increases in the money supply are correlated with declines in long rates.

Stabilization Policy: Response and Extension

In my stabilization policy paper [Obst, 1978] two results were demonstrated within the context of a simple model. First, a constant rate of growth of the money supply leads to a trade cycle (of constant amplitude) in the rate of inflation and in the unemployment rate.1 Second, a feedback money supply growth rate rule determined so that monetary growth varies inversely with changes in the inflation rate (independently of the level of the inflation rate) can both lower the inflation rate to any predetermined equilibrium level and return the economy to full employment, thus stabilizing the model. Professor Martin, in his comment [Martin, 1980], is concerned solely with the constant amplitude of the cycles generated with a constant money supply growth rate. By specifying an ad hoc adjustment mechanism for output, he is able to obtain convergence under restricted parameter values. This type of result suggests the need, in comparing policy rules, not only to verify that an activist monetary growth rule produces stability, but also to demonstrate explicitly that it can also either improve other cycle characteristics or eliminate cycles and result in monotonic convergence to equilibrium. In what follows, it will be shown that the above monetary growth rate feedback rule, if pursued with sufficient vigor, will lead to convergence without cycles in my original models and will also eliminate the trade cycle in Martin's own model. Subsequently, several defects in Martin's comment will be examined. It will be argued that Martin's output adjustment equation is not correctly specified. It should logically involve the stock excess demand function rather than his flow