Monetary Theory Research Articles

A Comprehensive Investigation into the Money Demand Function in Cambodia: An Empirical Analysis

The objective of this study is to establish a money demand function in Cambodia. The findings obtained through the ARDL approach to cointegration indicate that real income, consumer price index, and interest rate are cointegrated with real money demand. In terms of the estimated results derived from the long-run model, it is observed that real income has a statistically significant positive impact on real money demand, while the general price level and interest rate have a negative impact. The short-run dynamic model, known as the error correction model, demonstrates that all explanatory variables collectively account for the growth rate of real money balances. In the short-run, the growth rate of real income exhibits a positive relationship with the demand for real money, whereas the inflation rate and changes in interest rate have a significant negative effect on the demand for real money balances. The estimated slope coefficient of the short-run dynamic model, which measures the speed of adjustment, is projected to be 60.67%. This outcome suggests that the real money balance model takes no more than two quarters to adjust towards long-run equilibrium in response to short-run dynamic shocks. Stability tests, such as the CUSUM and CUSUMSQ tests, indicate that the real money demand function in Cambodia remains stable in the long-term. The findings derived from this study provide empirical evidence in favor of the quantity theory of money.

Monetary policy on launching new production facilities in Russia: Opportunities in the semiconductor market

The paper discusses the capabilities of the Russian monetary system for massive lending to new industries that are of strategic importance to the country and contribute to its technological sovereignty. The key provisions of monetary theory and the concept of multiplier constitute the theoretical basis of the study. Modelling transient processes was used as the main research method. Empirical evidence is official data from the Bank of Russia and the Federal State Statistics Service (Rosstat), as well as industry reports on the global semiconductor market. The authors propose their own model of the transition process, which allows assessing the possible inflation rate and economic growth generated by massive credit investments. Testing the model in the microelectronics industry showed that assumptions about the Bank of Russia possibly losing its control over inflation due to a large-scale lending are unfounded. Even during the first two years, when the construction of a new enterprise is underway and there is an obvious imbalance between the product and money supply, the additional inflation rate caused by this initiative does not exceed 0.5 % per year. We conclude that the regulator has enough reserves to open credit lines for establishing new high-tech enterprises simultaneously in several industries. The proposed model can be used to optimize the public administration system when designing the country’s technological development strategy focused on domestic import substitution.

Assessing Modern Monetary Theory’s Peculiar Ontology of Money

Macroeconomic traditions disagree on the policies needed for the economy to properly function and how to assess them. In this paper, we contend that these disagreements originate from the social ontological commitments of a theory. The ontology of money underlines these disagreements between Modern Monetary Theory (MMT) and mainstream economics. First, we assess MMT’s ontology of money. Next, we identify MMT’s normative commitments and classify MMT’s ontology as a taxonomic definition with thick concepts. Finally, we offer reasons why MMT's ontology of money leads to rivalries with other economic traditions. We argue disagreements on policy are expected, given the ontological differences elaborated.

Endogenous money, soft budget constraint and the banking regulation

AbstractA key observation of the endogenous money theory is that banks create deposits (money) by lending. This means that banks apparently face soft budget constraint in responding to demand for credit. However, there are several limiting factors, which can make the banks' money creation somewhat constrained, and can thus harden their budget constraint. Such factors include the need to preserve banks' profitability and the bank regulations (the capital and liquidity requirements). Previous literature on soft budget constraint (SBC) in banking mentioned government bailouts, central banks lender-of-last-resort policies, or the poorly informed depositors who over-finance banks, as reasons for the SBC for banks. Taking the endogenous money theory as a starting point, we use a different approach. We analyze whether the tools that aimed to keep the bank's budget constrain hard are appropriate for this purpose. Our analysis, as well as lessons from several recent bank crisis episodes suggest, that under current banking regulation SBC is an inherent feature of banking.

Empirical examination of public debt sustainability in African economies: A panel data analysis

This study intends to investigate public debt sustainability across 29 Sub‐Sahara African (SSA) economies, employing various econometric specifications, for the sampled years 1996–2020. The study employs Bohn's (Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint? Journal of monetary Economics, 54(7), pp.1837–1847.) framework of sustainability as the baseline model to assess public debt sustainability across the sampled Sub‐Sahara African economies. As additional tests of public debt sustainability in order to support the baseline findings, the study also employs panel unit root and timeseries unit tests. The baseline findings from the OLS, panel quantile and instrumental panel quantile regressions show that public debt is sustainable across the panel of SSA economies. The positive and statistically significant response of primary balance under the Bohn's framework of sustainability manifest that the intertemporal budget constraint is not violated in the sampled economies. The consistency in the estimates under the OLS, panel quantile and instrumental panel quantile regressions also show that the estimates are robust throughout the estimation process. Also, utilizing the panel unit root test for public debt sustainability, the findings show that public debt is stationary over the sampled years which implies that intertemporal budget constraint holds and that public debt is sustainable across the sampled SSA economies. However, the timeseries analysis indicate that although majority of the SSA economies have sustainable public debt ratios, four countries namely Uganda, Sudan, Togo and Cote d'Ivoire have unsustainable public debt ratios. The study has important policy implications in terms of prudent public debt management and fiscal management for the sampled SSA economies.

Federal Funds Rate Spillover Effect On Emerging Market Banking Liquidity And Capital – Evidence From Indonesia

This paper examines the spillover effect of the fed fund rate (FFR) on emerging banking liquidity and capital in emerging markets, especially in Indonesia, using the Structural Equation Model (SEM). Data were collected from the Indonesia Central Bank and Financial Services Authority. Our model reveals a significant indirect negative relationship between FFR, banking liquidity, and capital. This relationship was examined both directly and indirectly using the model. While the FFR influence was robust, the impact on liquidity and capital was translated through the local bank rates. It is found that rising interest rates would still result in tighter liquidity to some extent. FFR also impacts capital decisions because the rising interest rate might incentivize managers to borrow from a lower market environment. Thus, observing the indirect relationship, the impact of the FFR depends on the local central bank monetary policy transmission to mitigate the spillover effect resulting from developed economy monetary policy.

Candyland Economics: Finding the Sweet Spot to Better Teach the Economics of International Trade Through an Interactive, Fun, and Delicious Game

International trade has been a central focus of economics since the inception of the discipline. Despite everything we have learned about the benefits of free trade, the topic remains one of the most difficult for students to comprehend, especially in today’s climate, where trade policy has become so polarizing. This paper describes a simple, easy-to-understand, student-involved, and dynamic trading game that is designed to cut through all the noise and controversy surrounding trade policy to convey essential insights about trade. It also describes how trading games like this one can serve as a jumping-off point for more in-depth discussions of a wide variety of economic topics related to the subjective theory of value and monetary economics.

Review Essay: Sound Money without Free Banking: Revisiting Economic Principles

Professor Lawrence H. White is one of the founders of the modern free banking school and a major scholar of monetary theory and history. In Better Money: Gold, Fiat, or Bitcoin? he draws on close to four decades of scholarship to answer the question put in the title: which monetary standard would be better. It should not come as a surprise that Professor White sees the contest mainly between gold and bitcoin. What is a “better” money? Professor White proposes that this must be judged “nonpaternalistically” from the viewpoint of the money-holders themselves. This is surely the correct approach. Two criteria are laid down: a money must serve as a convenient and low-cost medium of exchange, which means non-declining and predictable purchasing power; and the monetary system as a whole should have desirable properties such as avoiding depressions associated with monetary disequilibrium (p. 17). While we find the approach and the first criterion eminently sensible, the second point is much more questionable. Much of the review is therefore devoted to aspects of this second point.

Currency rate and the Cycle of Money theory

The current paper explains the fundamental concepts of CM theory (Cycle of Money Theory or otherwise known as Cycle Money Theory). The theory of the Money Cycle examines an economy as a whole, therefore the structure of the economy and the distribution of money in the economy is evaluated in terms of how they interact. An economy with a high index of the money cycle indicates prosperity. The current paper demonstrates that tax evasion causes a delay in tax revenue. Tax evasion, on the other hand, has caused economic harm to the economy because money is stored for tax havens rather than the local banking system. Inflation is the economic disease of the inadequate structure of the economy, because of the not appropriate distribution and reuse of money. Functionality (economic activity) and structure of the economy are connected through the way that money moves in an economy or is lost from it. The currency rate in this paper is analyzed based on the theory of the Cycle of Money.

The Historical Evolution, Developments and Accounting Implications of Cryptocurrency Operations

The governments around the globe except Salvadoran government had issued several warnings such as outright ban against the investment in the cryptocurrency. This act was due to the associated risk of loss of investment and lack of accountability framework in the countries. This paper, therefore, appraises the historical evolution and accounting implications of cryptocurrency operations. The desk review methodology anchored on content analysis of relevant literatures and conveniency sampling method was used for the study. The paper identified that the evolution of cryptocurrency was based on the desire to jettison government intervention in financial control vis-a-vis the experience of the global meltdown of year 2007-2008. Also, the study revealed that lack of local and global accounting standard affects accountability in terms of cryptocurrency. The study, therefore, concludes that cryptocurrencies and central bank digital currencies (CBDCs) are new trends in the evolution of monetary economics. It, therefore, recommends that International Federation of Accountants (IFAC) should, in the interest of global citizenry, put in place an emergency machinery and framework for the setting and release of global accounting standard that is specific to cryptocurrency.

Factors of the Inflation in Nepal

This study examines the impacts of macroeconomic variables on the inflation in Nepal during 1975-2022. The variables considered for the study is limited to the use of broad money supply, real GDP, Indian prices. The results suggest that all variables considered are significant in long run implying that these variables are the determinants of inflation in Nepal. The results are consistent with monetary theory. The money supply and Indian prices cause inflation in the long-run based on an Ordinary Least Squares regression model. The empirical results show that in the long-run, the major determinants of inflation in Nepal are Indian inflation (0.453), real income (0.347),and exchange rate (0.224). In addition, Indian inflation (0.286), the exchange rate (0.141), and government deficit (0.039) have significant effects in the short-run. Finally, the error correction term is found to be negative and statistically significant suggesting a correction of short-run disequilibrium within two years.

A Mathematical Analysis of a MMT Type Coordinated Fiscal and Monetary Stabilization Policy in a Dynamic Keynesian Model

We study the dynamic properties of the coordinated fiscal and monetary stabilization policy in a modern monetary theory (MMT) type macrodynamic model in detail using advanced mathematical techniques and numerical simulations. The dynamic stability, instability of equilibrium points, and questions of qualitative changes at bifurcation points are investigated both mathematically and numerically. Finally, the economic implications of the analysis of this MMT type dynamic model are discussed in contrast to the more orthodox type of Keynesian stabilization policy mix model.

A fiscal theory of money and bank liquidity provision

Fiscal-backed money can provide additional liquidity to consumers and mitigate the liquidity shortage problem in an economy with banks where agents face idiosyncratic liquidity shocks without being fully insured. The government issues fiat money and creates real value for money by levying a tax and accepting money for tax payments. Tax reallocates the distribution of liquidity in the economy. An increase in tax, by increasing fiscal surplus and the real value of money, reduces the equilibrium investment. Additionally, imposing taxes influences the incentive of private information production, which may impose a constraint on optimal fiscal policy.

Against the Streams: Alain Parguez and the Theory of the Monetary Circuit

Alain Parguez, together with Bernard Schmitt and Augusto Graziani, is one of the founders of the modern theory of the monetary circuit. Parguez was making his first forays into monetary circuitism in the 1970s, in the years of my formation, when I came in contact with Augusto Graziani. Graziani’s and Parguez’s reflections were independent, but converging. In the article, I consider the parallels and divergences. I will recall some elements of Alain Parguez’s early version of the theory of the monetary circuit. Like Graziani, Parguez was in stark opposition not only to neoclassical theory and ‘bastard’ Keynesianism, but also with a significant part of the post-Keynesian strand. Parguez’s thinking was against the streams (plural): not only the mainstream, but also much of the so-called alternative approaches. In the late Parguez, an undeniable (but limited) connection with Modern Money Theory was emerging. It might seem that over time Parguez reached conclusions dissenting from Graziani, and his own earlier version of the circuit. I will try to give some arguments for my view that this is only partially true, and that some differences are overstated. I will also address some of Parguez’s views on economic policy.

Digital Currency as a Result of the Capital Evolution: Political Economy Approach

The article examines the nature of modern digital currency in the logic of the Marxist theory of money and capital. Value is considered as a common genetic basis and as the civil existence of property, which logically manifests itself in the form of money. In this regard, the theory of money is considered in unity with the theory of capital as private ownership on the means of production. The evolution of forms of money can be traced at different qualitative stages of the development of capitalism, where digital currency is the highest form of money as essences and at the same time a transitional form of the capital removing. The article shows the contradictory nature of capital and digital currencies

Polychrome and Monochrome Porcelain: The emergence and development of new type of colored white porcelain in late Chosŏn

Two novel types of colored porcelain appeared in late Chosŏn: polychrome porcelain that was decorated with two or more colors, and monochrome porcelain colored all-over with a single color, as if with underglaze. The use of various colors on late Chosŏn porcelain was a significant turning point for its production. This development was likely caused by influences from Qing and Japan. In Qing, colored porcelain was the dominant type, already in everyday use, and Japan was following Qing closely. Chosŏn accepted this foreign culture of colored porcelain, and actively valued and embraced the culture and products of Qing. Whereas colors had served to distinguish different social classes in the Neo-Confucian hierarchy, they began to be employed more liberally. In late Chosŏn, the rapid growth of commodity and monetary economy meant that the existing social system that was built with yangban in the center was being upturned. Now, colors could be used more freely without any social restrictions. In the 19th century, scholars of the Northern Learning received influence of the Kaozheng school and tried to explain the world according to what was real. For them, colors provided a way of expressing the importance of subjective information and veracity. As all social classes could enjoy colors, different colored porcelain was developed and widely used, representing the new-found importance of colors in late Chosŏn.

Complex Systems Modeling of Community Inclusion Currencies

This interdisciplinary paper blends knowledge from computer science and economics in proposing a complex dynamic system subpopulation model for a blockchain form of local complementary currency, generic to the Grassroots Economics Foundation’s Community Inclusion Currency (CIC) implemented in Kenya. Our contribution to the emerging economics literature is five-fold: (i) we take a novel meso-economic approach to elicit utility from actual transactions data and reveal an ‘optimal’ disaggregation number of typical community subgroups; (ii) we relate the local CIC functioning to a nation-wide currency board monetary regime to argue that such a credible CIC implementation ensures trust in the CIC and makes it a valuable market-based channel to alleviate poverty, in addition to humanitarian or government aid channels. However, (iii) we also find evidence in our data that substitutes for real-world money such as CICs are perceived as inferior, and hence CIC systems can only be transitional. Then, (iv) we reveal that, for a poor population, saving dominates as a use of a cluster’s CIC balance, accounting for 47%, followed by purchase of food and water, 25%. Despite these dominant patterns, (v) we uncover a considerable heterogeneity in CIC spending behavior. Our contribution to the related computer-science and Tokenomics literature is two-fold: (i) we provide an open-source scaffold for modeling CIC viability and net flows; (ii) to simulate a subpopulation mixing process, we employ a network-based dynamical system modeling approach that is better grounded in economic principles and monetary theory.

Reinterpreting Modern Monetary Theory Through an Islamic Lens: Insights from Indonesia's Economic Thought

Modern Monetary Theory (MMT) has gained attention, particularly following the crisis caused by COVID-19, which led every country to experience a significant decline in economic growth. This concept proposes the idea that a central bank can create money to finance real sector activities without having to borrow from specific parties, which is then believed to solve various economic problems. This theory has sparked various disagreements within conventional economics. Therefore, in countries that adopt dual economic systems, they certainly have their own perspectives when considering this monetary theory. This research utilizes library documentation or collected reading sources as data sources. The research findings suggest that the concept of MMT is not in conflict with Islamic Sharia, as the MMT concept aligns with the functions of money described by Al Ghazali and Ibn Khaldun. Hence, the MMT concept is not expected to lead to excessive inflation, as it conforms to the Islamic theory of the function of money, where money serves as a medium of exchange rather than a tradable commodity. With this concept, the quantity of goods in a country will be accompanied by the Money Supply. However, the application of economic theories like MMT must be adapted to the conditions and economic concepts of a given country. Despite MMT's compatibility with Islamic monetary concepts, Indonesia is not yet ready to fully implement MMT, which is why the predicted level of moral hazard risk is higher.

State Policy in the Sphere of Ensuring Economic Security: Management Aspect

"It is shown that the problem of forming the policy of economic security requires study in connection with the need to improve the theory and practice of the formation of state economic policy, as well as the study of certain problems related to the peculiarities of the functioning of the mechanism for ensuring economic security. Modern economic policy, guided in most cases by the provisions of neoclassical economic theory, in particular the monetarist theory of state influence on the economy, is not always effective enough, and state failures are becoming increasingly more frequent when various deviations of the actual conditions of economic development from classical models occur, which is especially obvious at present, with the increasing influence of the factor of geopolitics and geoeconomics on the economic security of states."

The Currency of Politics: Rejoinder

AbstractThis response gives me the opportunity to clarify, extend, and complement several aspects of my conceptual and historical argument in The Currency of Politics. I do so primarily by situating my account more explicitly within debates over European monetary politics, by expanding on my use of history, and by articulating what differentiates my concern with the political theory of money and the politics of depoliticisation from complementary accounts. In doing so I elaborate on the ways in which engagement with the thought of John Maynard Keynes helped to structure my approach. While there are important limits to the politics of money under contemporary capitalism, these limits are not fixed economic ones but are better seen as political limits of monetary politics that nonetheless leave considerable space for articulating alternative demands for more democratic forms of money. This framing allows me to extend my argument in order to address contemporary struggles over credit policy, monetary reform, and climate change in Europe. I thus end with a set of critical reflections on the constitutional status of money in the European project and beyond.