MDVELTRANSCLASS

MDVELTRANSCLASS - Md & Transmission of Monetary Policy...

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1 1 s Quantity Theory of Money - LR b M x V=P x y b M->P s Why? s Keynesian Demand for Money b Md=f(i, Y, P) b Changes in Ms-> changes in Md -> i , Y, P b Precautionary, transactions, speculative demand for money b Md&Ms->I nominal int rate in SR s Monetarist – Friedman b M->Py in SR b M->P LR s Transmission ‘Channels’ s Evidence/Debates 2 Does Money Matter (to the Economy)? s Early Keynesians – no b liquidity trap/ interest elasticity of Investment b Can’t push on a string s Monetarists – yes only M matters b multiple channels s “Monetarist – Fiscalist’ Debates s Modern View - yes b Multiple Channels b Long run – P b Short run – y, P 3 In the News
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2 4 Course Issues s Investment Game s What to do if not doing well s Clickers REGISTER THEM s Engineering and Computer Science Career Day Friday, September 24, 10:00 - 3:00 PM Busch Campus Center 5 Application- Is Velocity Constant? 6 Why does velocity matter? s Link between Quantity of Money (Ms) and Expenditures PxY b Transmission of changes in M to economic activity s If V stable/fixed M -> PY s If V unstable and/or f(i) b M does not -> PY s Considerable controversy s In recession of 2007-09?
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3 7 Velocity s Determinants b Institutional factors b Financial Technology s Mmmf, sweep accts, atms b Interest rates b Uncertainty b Expected Inflation b Income s Luxury good? s Economies of scale s International Comparisons b Bordo, et. Al U Shaped b Monetization – downward sloping portion b Financial innovation – upward sloping 8 The Quantity Theory of Money s Equation of Exchange M x V = P x Y b Velocity V=PxY/M s Quantity Theory of Money b V constant – institutional factors
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MDVELTRANSCLASS - Md & Transmission of Monetary Policy...

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