I like to think about macroeconomics as composed of the equilibrium real world, the equilibrium nominal world and the disequilibrium sticky world a la Scott Sumner. If you’ve followed the blog for a while, you will know that I’ve written a primer on long-run growth i.e. the equilibrium real world. So this is going to be a similar thing, but about money and its role in business cycles i.e. the equilibrium nominal world and the disequilibrium sticky world. Throughout all 5 parts, I’ll try to blend a mix of economic intuition and mathematical modelling with the broader historical context and empirical data.
In Part I, we will glance at the basics of money: what it is, how it affects the nominal and real worlds, as well as the goals and practice of monetary policy.
In Part II, we will test the empirical validity of propositions around money in the nominal world and real world: the quantity theory of money, the long-run neutrality of money, as well as the non-neutrality of monetary policy in the short run.
In Part III, we will go back to the seminal paper regarding monetary policy, Milton Friedman’s 1968 “The Role of Monetary Policy” and discuss how it’s fared over time.
In Part IV, we will take a look at the work by the Princeton Five i.e. the modern conception of how monetary policy works near the zero lower bound.
And finally in Part V, we will examine some special ideas of nGDP targeting and the fiscal theory of the price level, looking at how the literature on these two topics has evolved.