Quantity Theory Research Articles

Excess Reserve Management of Bangladesh Bank

Monetary accounts identity is taken into consideration to derive the excess reserves (ER) of deposit money banks (DMBs). DMBs Taka balance with Bangladesh Bank (BB) in reserve money (RM) minus cash reserve requirement (CRR) results ER in the central banks account. The shortfall of ER can also happen. ER is affected by autonomous and policy factors. Autonomous factor includes net foreign assets (NFA), net position of government and currency in circulation (CIC). The ER is managed through open market operations (OMOs), which is the policy factor. Without BBs intervention four days ER forecast is calculated in this paper to maintain the orderly situation in interest rate, exchange rate, inflation and output. Rise in call money appreciates the Taka against foreign currency and help to stiffen the inflation. Management of ER or Taka liquidity including sterilisation using BB Bill and reverse repo is crucial when NFA of RM increases. Using of principal asset mortgaging government securities to get liquidity through repo assured liquidity support facility (ALSF) is also important element for optimum ER management in Bangladesh. This paper addresses the issues relating to monetary and economic analysis, the two pillars of monetary policy for effective management of money multiplier (mm) and forecasting of ER. Quantity theory of money is analyzed to understand the money demand and supply relating to ER. The stability in mm is used as underlying factor to make relation among ER, interest rate, exchange rate, inflation and output.

Excess Reserve Management of Bangladesh Bank

Monetary accounts identity is taken into consideration to derive the excess reserves (ER) of deposit money banks (DMBs). DMBs Taka balance with Bangladesh Bank (BB) in reserve money (RM) minus cash reserve requirement (CRR) results ER in the central banks account. The shortfall of ER can also happen. ER is affected by autonomous and policy factors. Autonomous factor includes net foreign assets (NFA), net position of government and currency in circulation (CIC). The ER is managed through open market operations (OMOs), which is the policy factor. Without BBs intervention four days ER forecast is calculated in this paper to maintain the orderly situation in interest rate, exchange rate, inflation and output. Rise in call money appreciates the Taka against foreign currency and help to stiffen the inflation. Management of ER or Taka liquidity including sterilisation using BB Bill and reverse repo is crucial when NFA of RM increases. Using of principal asset mortgaging government securities to get liquidity through repo assured liquidity support facility (ALSF) is also important element for optimum ER management in Bangladesh. This paper addresses the issues relating to monetary and economic analysis, the two pillars of monetary policy for effective management of money multiplier (mm) and forecasting of ER. Quantity theory of money is analyzed to understand the money demand and supply relating to ER. The stability in mm is used as underlying factor to make relation among ER, interest rate, exchange rate, inflation and output.

Money Multiplier and Velocity Playing for Money Neutrality

Quantitative theory of money appears as having the most to say about the today money - e.g. this is a genuinely and largely developed and even developing theory of economics, a theory searching for relating the money base to real economy (i.e. national product or income) plus it verifies, as its basic equation (MV = PT) on long term. Despite that, there is another theoretical context putting this into a very shadow - i.e. the polemics of money being: (a) representative, versus (b) fiat - since this last polemics succeeds to push the quantitative theory off impartiality. In other words, the quantitative theory sees itself caught as limiting monetary base to money supply, as well as GDP to its nominal (money) value - i.e. no mention about money base itself that is the currency directly issued by the authority into the national area, as the one of validity.

Is there Causal Relationship between Money Supply Growth and Inflation in China? Evidence from Quantity Theory of Money

AbstractThis study examines the causal relationship between Chinese money supply growth and inflation, using the bootstrap Granger full‐sample causality test and sub‐sample rolling‐window estimation test to determine whether such a relationship in China supports the quantity theory of money. The result indicates that there is a unidirectional relationship from inflation to money supply growth. However, considering structural changes in two series, we find that short‐run relationships using full‐sample data are unstable, which suggests that full‐sample causality tests cannot be relied upon. Then, we use a time‐varying rolling‐window approach to revisit the dynamic causal relationship, and the results show that money supply growth has both positive and negative impacts on inflation in several sub‐periods, and in turn, inflation has the same effects on money supply growth for China. These findings are basically consistent with the modern quantity theory of money from the perspective of money supply and price level. When money supply growth does not outweigh output growth, inflation should not be curbed only by decreasing money supply. It notes that a stable money supply growth is critical to price level stability and economic development in China.

The Underground Economy of Czech Republic and Tax Evasion: The Currency Demand Approach

This study investigates the underground economy of Czech Republic and the associated losses in tax revenue. The presence of an underground economy may not necessarily be bad for the economies in which they prevail but they could cause huge losses to government revenue and could also constitute serious violation of labour regulations. The study uses the Currency Demand Approach. It measures the size of the underground economy in two stages: a) the econometric estimation of an aggregate money demand equation b) the calculation of the value of the underground economy through the quantity theory of money. The key variables in the study include: the total currency held outside the banking system, the number of automatic teller machines, the deposit interest rate, GDP deflator, the average tax, velocity of money, nominal GDP and nominal money supply. The results from the study show that the underground economy of Czech Republic on the average is about 20.9% as at the end of 2013 and the country loses an average tax revenue of about 7.2% of GDP yearly. The data was obtained from the World Bank country indicators and the International Financial Statistics.

THE BEHAVIORAL CHARACTERISTICS OF VELOCITY MAY SOON LEAD TO A RISE IN INFLATION

ABSTRACT The Federal Reserve's accommodative policy response to the Great Recession has left many wondering if inflation will rear its destructive head in the near future. In fact, the Quantity Theory of Money predicts that a rise in the money supply will result in an increase in prices. But, this theory is controversial. Some economists argue that the Velocity of money may be variable and thus can influence changes in the level of prices. Others argue that Velocity is constant and that over the long-run an increase in the money supply will inevitably lead to an increase in the level of prices. This study reviews the current measurements of the Quantity Theory of Money and attempts to provide a framework for understanding the impact of certain behavioral characteristics of consumer saving and spending not accounted for in the theory. Keywords Quantity Theory of Money, Inflation

Friedman Meets Hayek on Money and Prices in Canada

Though both classical liberals, Friedman adopted the quantity theory of money and used the general price indexes and aggregate data in empirical analysis, whereas Hayek rejected aggregative analyses as potentially misleading and focused on the impact of money on relative prices in his business cycle theory. This study shows theoretically that when the central bank minimizes the monetary shock to maintain stability in the general price level, it also maintains simultaneously relative price stability, thus narrowing the divergence between Friedman and Hayek. This finding is empirically verified by Canada’s experience with inflation targeting since 1991

Moeda, crédito e ciclos econômicos em Marshall

Resumo Este artigo tem por objetivo examinar os elementos centrais da análise de Alfred Marshall sobre as flutuações cíclicas, contemplando o papel da especulação e do crédito nesse contexto. A primeira seção contém breve introdução ao assunto. A seguir, tratam-se das contribuições de Marshall sobre os determinantes das taxas de juros normal e de mercado, bem como a sua reformulação da Teoria Quantitativa da Moeda. Após, apresenta-se a sua explicação dos ciclos econômicos, na qual se articulam em uma mesma estrutura os elementos teóricos expostos nas seções anteriores. Ao final, uma comparação da teoria monetária de Marshall com as contribuições de Irving Fisher e Knut Wicksell é realizada, destacando-se os pontos de contato, bem como de distanciamento, entre esses proeminentes teóricos neoclássicos dos fenômenos monetários. Elabora-se ainda uma versão dinâmica formal do modelo marshalliano dos ciclos, incluída em apêndice.

La Escuela de Salamanca del siglo XVI: algunas contribuciones a la ciencia económica

The aim of this paper is to identify the contributions of the researchers at the School of Salamanca, sixteenth century, in relation with some formation of modern economic doctrines. The main contributions are: (1) the justification of free market in primarily necessities goods with upper prices that are setted by the state policy (Dr. Navarro and Fr. Rodrigo do Porto, 1552), (2) the three elements of the free market from whom known the right price (Juan de Medina, 1546), (3) the doctrine of the impossibility of accurate knowledge of the fair price for the sovereign (Juan de Medina, 1546), (4) the doctrine of the competition between buyers in the market (Juan de Medina, 1546) (5) the sources of the quantity theory of money in the books of Saravia de la Calle (1544), Melchor Cano (1544- 1545) and Rodrigo do Porto (1549).

Is Quantity Theory Still Alive?

This paper investigates whether the quantity theory of money is still alive. We argue that it is, but that the slippage is not negligible. For countries with low inflation, the relationship between average inflation and the growth rate of money is tenuous at best. A correction for variation in output growth and the opportunity cost of money, using theory implied elasticities, helps explain the slippage. For the period since 1990, inflation targeting at low rates of inflation makes it harder to establish the long run relationship between monetary growth and inflation.

The Price Level, Relative Prices and Economic Stability: Aspects of the Interwar Debate

Recent financial instability has called into question the sufficiency of low inflation as a goal for monetary policy. This paper discusses inter-war literature bearing on this question. It begins with theories of the cycle based on the quantity theory, and their policy prescription of price stability supported by lender of last resort activities in the event of crises, arguing that their neglect of fluctuations in investment was a weakness. Other approaches are then taken up, particularly Austrian theory which stressed the banking system's capacity to generate relative price distortions and forced saving. This theory was discredited by its association with nihilistic policy prescriptions during the Great Depression. Nevertheless, its core insights were worthwhile, and also played an important part in Robertson's more eclectic account of the cycle. The latter, however, yielded activist policy prescriptions of a sort that were discredited in the post-war period. Whether these now need re-examination, or whether a low inflation regime, in which the authorities stand ready to resort to vigorous monetary expansion in the aftermath of asset market problems, is adequate to maintain economic stability is still an open question.

English

This paper describes the current monetary system, identifying different components and the relationship between them. It is part of the Foucaultian approach of power relations and forms part of a body of work on the monetary conformation of corporate governmentality. It also forms part of the theoretical framework: the general monetary theory and, in particular, the quantity theory of money and the theory of business cycles. It describes four major components such as international organizations with effects on the money supply, states from dominant or dominated economies, the economy of large financial and non-financial companies and the real economy, made up of families and small and medium size companies. Within these four main components, there are different levels of action and influence in the money supply. The relationships, that are addressed, are the relationships which occur within each one of the components and the relationships between the different components. In these relationships between components of the monetary system, the creation of excess money supply is explained which produced the economic crisis as a result of the structure of the monetary system and its historical conformation. This document also describes the conformation of rent appropriation and yields, together with the process of the concentration of wealth, where the monetary system acts as an essential tool for achieving these purposes by large companies.

Notes (and Anecdotes) on Demonetization in India

This note provides a brief overview of India's demonetization off currency notes in November 2016. Written shortly after the announcement, the note uses the quantity theory of money as a basic framework to analyze the effects on GDP under various scenarios. Further, using anecdotal evidence, it discusses the factors determining the success or failure of the policy.

Regulation and Modeling of Business Processes in Enterprises Based on a Systematic Approach

When creating effective business processes of the industrial enterprises it is necessary to apply the systematic approach. It will allow to timely eliminate possible problems by their working out, to provide the control of process dynamics, to promote organization of qualitative work in the conditions of the limited information and to make decisions under quickly changing environment of functioning of the industrial enterprises. Constructed on the basis of the systematic approach with applying the theory of uncertain quantities the aggregated management model can influence the quality of regulating influence and results in decreasing the risks of negative consequences of the accepted decisions. Modern information systems and some software products make modeling more detailed and evident.

On the sources of macroeconomic stability in the euro area

In the mid-1990s the euro area experienced a change in macroeconomic volatility. Around the same time, at business cycle frequencies the correlation between inflation and money growth changed markedly, turning from positive to negative. Distinguishing the periods pre- and post-1994, we estimate a dynamic stochastic general equilibrium model with money for the euro area. The model accounts for the salient facts. We then perform several counterfactual exercises to assess the drivers of these phenomena. The moderation of real variables was essentially due to relatively smaller shocks to investment, wage markups and preferences. The apparent lack of evidence for the quantity theory of money in the short run and the changes in the volatility of nominal variables resulted primarily from a more anti-inflationary and gradual monetary policy.

Consideraciones sobre la delimitación entre coautoría y complicidad en el contexto del derecho penal chileno

This paper describes the state of the art in the national doctrine regarding the distinction between primary criminal responsibility (co-authorship) and secondary criminal responsibility (complicity), as legal categories of criminal involvement. To do this, first determine the practical importance of the problem and develops briefly the main theories on the material conception of authorship they have been receptioned the national average, bounded in particular the situation of co-authorship. Then examines the positive regulation, in particular arts. 15 No 1-3 and 16 of the Penal Code, taking account of the various doctrinal interpretations about it, ending with a practical example in which the three main models currently in force are articulated: (i) the domain (functional) of fact, (ii ) the analytical theory of the offense and (iii) the quantity theory of criminal involvement

Consideraciones sobre la delimitación entre coautoría y complicidad en el contexto del derecho penal chileno

This paper describes the state of the art in the national doctrine regarding the distinction between primary criminal responsibility (co-authorship) and secondary criminal responsibility (complicity), as legal categories of criminal involvement. To do this, first determine the practical importance of the problem and develops briefly the main theories on the material conception of authorship they have been receptioned the national average, bounded in particular the situation of co-authorship. Then examines the positive regulation, in particular arts. 15 Nº 1-3 and 16 of the Penal Code, taking account of the various doctrinal interpretations about it, ending with a practical example in which the three main models currently in force are articulated: (i) the domain (functional) of fact, (ii ) the analytical theory of the offense and (iii) the quantity theory of criminal involvement

The Quantity Theory of Money: Valid Only for High and Medium Inflation?

Abstract Under the assumption of a constant liquidity preference in the equation of exchange, the quantity theory of money (QTM) has been frequently confirmed for strong inflation regimes, but much less so for medium or low inflation. Against the backdrop of Milton Friedman’s famous rule and relaxing the constancy assumption, we study the time series and cross-sectional properties of central variables of the Cambridge-form of the equation of exchange across a large sample of countries. In doing so, we particularly focus on the liquidity preference parameter. Our cross-country analysis confirms Friedman’s conviction drawn from US data as we find the liquidity preference to also internationally grow secularly by about 2 percent p.a. on average. This holds for low-inflation as well as high-inflation countries. JEL Classification: E31, E41, E51, E59, C180

Quantity Theory of Money Redux? Will Inflation be the Legacy of Quantitative Easing?

Since the onset of the Federal Reserve's unconventional programme of large-scale asset purchases, known as quantitative easing (QE), some economists and financial practitioners have feared that the consequent buildup of the Fed's balance sheet could lead to a large expansion of the money supply, and that such an increase could cause a sharp rise in inflation. So far fears about induced inflation have not been validated. This article examines the basis for the original concerns about inflation in terms of the classic quantity theory of money, which holds that inflation occurs when the money supply expands more rapidly than warranted by increases in real production. The article first reviews the US experience and shows that whereas rapid money growth might have been a plausible explanation of inflation in the 1960s through the early 1980s, subsequent data have not supported such an explanation. It then shows that the quantity theory of money has not really been put to the test after the Great Recession, because a sharp increase in banks’ excess reserves and corresponding sharp decline in the ‘money multiplier’ has meant that the rise in the Federal Reserve's balance sheet has not translated into increased money available to the public in the usual fashion. The most likely aftermath of quantitative easing remains one of benign price behaviour. However, if nascent inflationary conditions materialise, the Federal Reserve will need to manage adroitly the large amounts of banks’ excess reserves that have accumulated as a consequence of QE in order to limit inflationary pressures.

Copernicus and the Quantity Theory of Money

This paper examines Nicholas Copernicus’ monetary thinking to ascertain whether he is an early expositor of the quantity theory of money. The paper reviews the historical setting of the 1500s, considers the history of economic thought that pertains to the quantity theory of money, and considers prior translations and interpretations of Copernicus’ manuscript On the Minting of Money with our own translation. The paper finds that Copernicus’ monetary thinking is noteworthy for associating monetary policy instability with various economic effects, but he is not a quantity theorist or an advocate of policy positions associated with quantity theorists.