Adam Brzezinski, Yao Chen, Nuno Palma, Felix Ward, 14 November 2019

During the early 16th to 19th centuries, Spain received large amounts of monetary silver from its colonies in America. Vagaries of the sea thus affected Spain’s money supply. This column investigates the effects of money supply shocks on the economy using the case of maritime disasters in the Spanish Empire. It finds that a one-percentage-point reduction in the money growth rate caused a 1.3% drop in real output that persisted for several years. Analysing monetary transmission channels, it shows that price rigidities and credit frictions account for most of this non-neutrality result.

Frank Decker, Charles Goodhart, 14 December 2018

Credit mechanics and related approaches were developed by a group of German monetary economists during the 1920s-1960s. This column assesses the analysis of credit mechanics within the context of the current money supply debate, arguing that the theory qualified a one-sided, bank-centric view of money creation which is now often encountered in monetary theory. With the old standard textbook models of money creation now discredited, the authors advocate a more general approach to money supply theory involving credit mechanics. 

Luca Benati, Robert Lucas, Juan Pablo Nicolini, Warren E. Weber, 11 March 2017

Most economists and central bankers no longer consider money supply measures to be useful for conducting monetary policy. One reason is the alleged instability of the relationship between monetary aggregates. This column uses data from 32 countries and spanning up to 100 years to argue that the long-run demand for money is alive and well. Results show a remarkable stability in long run money demand, both within and across countries. Nonetheless, short-run departures can be large and persistent, and further research is needed.

Yin-Wong Cheung, Sven Steinkamp, Frank Westermann, 27 January 2016

Since the beginning of the Global Crisis, illicit capital flows out of China have been in decline. This column argues that a key factor behind this is the relative money supply between China and the US. China’s rapidly increasing money supply, combined with the Fed’s expansionary monetary policy, prompted investors to reallocate their portfolios between the two countries. Another contributing factor is China’s gradual process of capital account liberalisation. The Fed’s interest rate hike in December may see a resurgence in China’s capital flight.

Stefano Ugolini, 11 December 2011

While many central bankers feel they are now in unchartered territory, this column argues that history may provide guidance. Going back to a time before central banks, it argues that there are long-term cycles in the evolution of monetary policy – governments have alternatively internalised and externalised money creation. The key to success is not who runs monetary policy, but how credible they are.

Lee Ohanian, 19 October 2009

What started the Great Depression? This column says that the industrial decline began before monetary contraction or banking panics – the conventional culprits – took hold. It attributes the massive drop in manufacturing hours to President Hoover’s labour policies, which kept nominal and real wages high.

Michael Woodford, 26 March 2007

Should money supply play a role in monetary policy-making? The author of CEPR DP6211 reviews the pros and cons and finds that there are no compelling reasons to assign a prominent role to monetary aggregates in monetary policy-making. The goals of the ECB's two-pillar strategy - which includes a role for money - are praiseworthy; the author believes that ECB justifications for looking at monetary aggregates provide little support for this approach.

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