Lecture 11_EC3332[1] - 10/15/2010 1 Lecture 11 Monetary...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 10/15/2010 1 Lecture 11 Monetary Policy and Inflation Money and Inflation: The Evidence “Inflation is Always and Everywhere a Monetary Phenomenon” (M. Friedman) Evidence In every case when π high for sustained period , M growth is high Examples: 1. Latin American inflations 2. German Hyperinflation, 1921–23 Controlled experiment, particularly after 1923 invasion of Ruhr— govt prints money to pay strikers, π > 1 million % Meaning of “inflation” Friedman’s statement uses definition of π as continuing, rapidly rising price level: Only then does evidence support it 10/15/2010 2 π and Money Growth in Latin America German Hyperinflation: 1921–23 10/15/2010 3 Response to Continually Rising M s Monetarist and Keynesian View 1. M ↑ continually, shifts AD to right from AD 1 to AD 2 to AD 3 , etc. 2. Y > Y n , wages ↑ , AS shifts from AS 1 to AS 2 to AS 3 , etc. 3. P continually rises from P 1 to P 2 to P 3 , etc.: i.e., have inflation Monetarist and Keynesian Views of π Monetarist View Only source of AD shifts and π in Figure 2 can be M s growth growth Keynesian View Allows for other sources of AD shifts, but same conclusion that only source of sustained high π is M s growth 1. Figure 3 shows that fiscal policy without M s growth only causes P ↑ , but not sustained π 2. Figure 4 shows that supply shock does not lead to sustained π 10/15/2010 4 Response to One-Shot Increase in...
View Full Document

This note was uploaded on 02/29/2012 for the course ECONOMICS EC 3332 taught by Professor Shandre during the Spring '12 term at National University of Singapore.

Page1 / 11

Lecture 11_EC3332[1] - 10/15/2010 1 Lecture 11 Monetary...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online