The quantity theory of money and theories of money demand have a number of implications for monetary

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The quantity theory of money and theories of money demand have a number of implications for monetary policy.

a. Countries with high inflation can reduce inflation by controlling money growth.

b. Countries with low inflation can control inflation by targeting money growth only if the demand for money is stable in the short run.

c. In the United States, the relationship between the velocity of M2 and its opportunity cost (the yield on an alternative investment) has proven unstable over time.

d. The instability of money demand in the United States has caused Federal Reserve policymakers to pay less attention to money growth than to interest rates.

e. In the euro area, ECB officials view money demand as relatively stable, so they pay more attention to money growth than the Fed does.

f. Regardless of the stability of money demand, central banks target interest rates to insulate the real economy from disturbances in the financial sector.

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Money Banking And Financial Markets

ISBN: 9781260226782

6th Edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

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