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Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 234 Abstract:
Current approaches to monetary theory and policy owe much to the "quantity theory of money." However, recent theoretical developments suggest that the manner in which money is introduced is more important, even for price level movements, than the quantity of money. Colonial American experience provides a laboratory for discriminating between these views. It is shown here that the nature of backing, rather than the quantity of money, determined its value. Large secular inflations were ended by changing the nature of backing despite the continuance of large note issues (and despite the absence of a metallic standard). Extremely large note issues and note withdrawals are shown not to have produced inflation (currency depreciation) or deflation (currency appreciation).
Mot-clé: Fiat money, Quantity theory, Currency, and Colonial America Assujettir: N11 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: Pre-1913, E52 - Monetary Policy, and E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 245 Abstract:
Recent developments in monetary economics stress the nature of monetary injections, emphasizing that these have implications for the relationship between money and prices. In constrast, traditional approaches posit stable money demand functions that are independent of how money is injected. The former approach implies that certain proportionality relations between money and prices need not obtain. This permits the two approaches to be empirically distinguished, but only if an appropriate "experiment" is conducted. The colonial period is one such experiment. Colonial evidence suggests that the nature of injections is crucial to the effect on prices of changes in the money supply.
Mot-clé: Quantity theory of money, Sargent-Wallace theory of money, Monetary injections, and Value of money Assujettir: E51 - Money Supply; Credit; Money Multipliers and N11 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: Pre-1913
Creator: Azariadis, Costas. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Finance, fluctuations, and development Abstract:
We study a variant of the one-sector neoclassical growth model of Diamond in which capital investment must be credit financed, and an adverse selection problem appears in loan markets. The result is that the unfettered operation of credit markets leads to a one-dimensional indeterminacy of equilibrium. Many equilibria display economic fluctuations which do not vanish asymptotically; such equilibria are characterized by transitions between a Walrasian regime in which the adverse selection problem does not matter, and a regime of credit rationing in which it does. Moreover, for some configurations of parameters, all equilibria display such transitions for two reasons. One, the banking system imposes ceilings on credit when the economy expands and floors when it contracts because the quality of public information about the applicant pool of potential borrowers is negatively correlated with the demand for credit. Two, depositors believe that returns on bank deposits will be low (or high): these beliefs lead them to transfer savings out of (into) the banking system and into less (more) productive uses. The associated disintermediation (or its opposite) causes banks to contract (expand) credit. The result is a set of equilibrium interest rates on loans that validate depositors' original beliefs. We investigate the existence of perfect foresight equilibria displaying periodic (possibly asymmetric) cycles that consist of m periods of expansion followed by n periods of contraction, and propose an algorithm that detects all such cycles.
Mot-clé: Interest rates, Equilibrium, Credit markets, and Business cycles Assujettir: E51 - Monetary policy, central banking, and the supply of money and credit - Money supply ; Credit ; Money multipliers, E44 - Money and interest rates - Financial markets and the macroeconomy, O41 - One, Two, and Multisector Growth Models, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Boyd, John H. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 522 Abstract:
We consider a two country growth model with international capital markets. These markets fund capital investment in both countries, and operate subject to a costly state verification (CSV) problem. Investors in each country require some external finance, but also provide internal finance, which mitigates the CSV problem. When two identical (except for their initial capital stocks) economies are closed, they necessarily converge monotonically to the same steady state output level. Unrestricted international financial trade precludes otherwise identical economies from converging, and poor countries are necessarily net lenders to rich countries. Oscillation in real activity and international capital flows can occur.
Mot-clé: CSV, Open economy, International lending, Costly state verification, Capital investment, Closed economy, Credit rationing, International capital markets, and Credit Assujettir: F34 - International Lending and Debt Problems and O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance