The Effects of Money and Prices on Economic Activity

Abstract

The model presented in Chapter 2 is a simple one, and it no doubt overstates the influence of the monetary authorities, but it is a widely employed one nevertheless. As noted earlier, both the Keynesians and their opponents, either monetarists or ‘accelerationists’, have adopted this framework and, as a consequence, much of the evidence concerning the effects of money (or of monetary policy) on the economy has been presented in papers taking one or the other of these polar positions. What follows in this chapter is, first, a discussion of what is probably the mainstream debate — that over ‘monetary multipliers’ — and, secondly, more general statements of the roles of money, monetary policy and inflation in the economy.