Essays in Monetary Economics (Collected Works of Harry Johnson)

This book discusses explorations in the fundamental theory of a monetary economy, a theoretical critique of the 'Phillips Curve approach to the theory of inflation, and the theory of the term structure of interest rates in terms of the theory of forward markets pioneered by David Meiselman.

Format: Paperback / softback
Length: 322 pages
Publication date: 30 September 2021
Publisher: Taylor & Francis Ltd

This second edition, which includes a new introduction that outlines developments since the first publication, delves into explorations in the fundamental theory of a monetary economy. It also offers a theoretical critique of the 'Phillips Curve approach to the theory of inflation and the theory of the term structure of interest rates in terms of the theory of forward markets pioneered by David Meiselman.

The Phillips Curve approach, which gained prominence in the 1950s and 1960s, posits a relationship between inflation and unemployment. According to this approach, when inflation is low, unemployment is also low, and vice versa. However, this relationship has been challenged in recent years by economists who argue that it does not always hold true.

One of the main criticisms of the Phillips Curve approach is that it does not take into account the role of monetary policy in determining inflation and unemployment. Monetary policy refers to the actions taken by a central bank or other monetary authority to control the supply of money and interest rates in an economy. By manipulating these variables, policymakers can influence the level of inflation and unemployment in the economy.

For example, if a central bank wants to reduce inflation, it can increase interest rates, which makes borrowing more expensive and reduces the amount of spending in the economy. This can lead to a decrease in inflation and an increase in unemployment. On the other hand, if a central bank wants to reduce unemployment, it can decrease interest rates, which makes borrowing cheaper and encourages spending. This can lead to an increase in inflation and a decrease in unemployment.

Another criticism of the Phillips Curve approach is that it does not take into account the potential effects of structural changes in the economy on inflation and unemployment. Structural changes refer to changes in the composition of the economy, such as the shift from manufacturing to services or the increase in the share of the population that is retired. These changes can have a significant impact on inflation and unemployment, as they can change the demand for goods and services and the supply of labor in the economy.

Despite these criticisms, the Phillips Curve approach remains a popular tool for policymakers and economists to understand the relationship between inflation and unemployment. However, it is important to recognize that the relationship is not always linear and that other factors, such as monetary policy and structural changes, can also influence the level of inflation and unemployment in an economy.

In conclusion, this book provides a comprehensive exploration of the fundamental theory of a monetary economy, including a theoretical critique of the Phillips Curve approach to the theory of inflation and the theory of the term structure of interest rates in terms of the theory of forward markets pioneered by David Meiselman. It is an essential read for anyone interested in understanding the dynamics of the economy and the role of monetary policy in determining inflation and unemployment.

Dimension: 234 x 156 (mm)
ISBN-13: 9781032051376