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2 - Money

How Could Economists Do without It?

from Part I - Monetary Economics and Policy

Published online by Cambridge University Press:  29 March 2018

Philipp Hartmann
Affiliation:
European Central Bank, Frankfurt
Haizhou Huang
Affiliation:
China International Capital Corporation
Dirk Schoenmaker
Affiliation:
Erasmus Universiteit Rotterdam
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Summary

Monetary economics has given up the idea of money. As the profession has converged on a simple model of a single commodity and a single inter-temporal price, the real interest rate, money has disappeared from the picture altogether. Earlier generations of monetary economists would be baffled. One man who has stood out against these developments is Charles Goodhart, whom I regard as Mr. Monetary Economics of the United Kingdom. As an academic and senior economist at the Bank of England, Goodhart always accepted that it was important to understand the demand for and supply of money to appreciate the impact of central bank policy. Even in his eightieth year, Charles Goodhart raised pertinent questions about the consequences of the massive expansion of central bank balance sheets and base money, and of the impact of negative interest rates on private sector behaviour. None of these questions can be tackled seriously without a more sophisticated understanding of the monetary and financial sectors of our economies than is present in the models taught to graduate students and incorporated into the forecasting models in most central banks.
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Publisher: Cambridge University Press
Print publication year: 2018

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