19 May Stanley Fischer: (Money), interest and prices – Patinkin and Woodford. Speech by Mr Stanley Fischer, Vice Chair of the Board of Governors of. procedure which Professor Patinkin has proposed for the examination of the relative prices and interest as the quantity of money approaches zero as a limit. Download Citation on ResearchGate | Money, Interest and Prices | Twenty five to monetary and macroeconomics made in Don Patinkin’s Money, Interest, and.
|Published (Last):||12 February 2009|
|PDF File Size:||4.93 Mb|
|ePub File Size:||18.95 Mb|
|Price:||Free* [*Free Regsitration Required]|
Let us suppose, now that there are two kinds of money gold coins and bank deposits—suppose, we double the amount of gold coins but do not change the amount of bank deposits-—then, if we double the price level we can restore the real value of gold coins, but we will reduce the real value of bank deposits and the assets backing them, so that the patin,in cannot get back to the situation, it started from.
Again, the government borrowings and central banking open market operations have non-neutral pprices on the system.
The whole process is bound to generate equilibrating forces which will lower the values of various variables to their equilibrium positions. Let us be clear that Patinkin first criticised the so called classical dichotomy of money and then rehabilitated it through a different route. For example, a price increase may reduce the demand for consumer goods and increase the demand for money and bonds bringing about a redistribution against high consuming groups and in favour of high saving and lending groups.
Johnson also endorses these views expressed by Gurley and Shaw on the non-neutrality of money.
In other words, with an increase in the quantity of money the price level no doubt rises continuously towards the new equilibrium level and the same will be true of the wage rates. The equilibrium position as described above prevails during a certain initial period t. Such a redistribution will mean a lowering in the rate of interest in case the quantity of money is doubled. The real balance effect has been one of the most important innovations in thought concerning the quantity theory of money.
House and Land Prices in French Cities.
Patinkin’s Monetary Model – Explained !
The Costs of Agglomeration: What one needs the real balance effect for is to ensure the stability of the price level; one does not need it to determine the real equilibrium of the system; so long as one confines oneself to equilibrium positions. If they spend for commodities the price level increases in accordance with the direct aspect; if they spend on bonds securities the equilibrium will be restored through indirect process or operation.
The problem here is before Patinkin has been how these interfst theories can be reconciled—once this has been done, the other problem is— paitnkin the reconciliation permits one to arrive at the classical proposition that an increase in the quantity of money will increase all prices in the same proportion, so that relative prices are not dependent on the quantity of money. In other words, the same set of values—P 0w 0and r 0simultaneously cause: As a matter of fact, such a demand curve was implicit in the argument that a doubling of the money stock would induce a doubling of the price level.
Patinkin’s Monetary Model – Explained !
There is, now, an excess of income over the full employment income. Thus, the introduction of the real balance effect disposed of classical dichotomy, that is, it makes it impossible to talk about relative prices without introducing money; but it nevertheless preserve the classical proposition that the real equilibrium of the system will not be affected by the amount of money, all that will be affected will be the level of prices.
You do not currently have access to this article. What, however, is not analysed is the manner in which the increase in monetary wealth comes about. For the first time, the nature of the wealth effect is made explicit. If money is neutral, an increase in the quantity of money will merely raise the level of money prices without changing the relative prices and the interest rate. This particular property is described technically as neutrality of money.
But prices, on the other hand, have pstinkin changed by now. Patinkin has been able to show the validity and the rehabilitation of the classical quantity theory of money through Keynesian tools with the help of and on the basis of certain basic assumptions: Now, let us assume that there is a ppatinkin injection of additional quantity of money into circulation which disturbs the initial equilibrium position.
First, the demand for money is a function of the level of wealth. This, in turn, reacts back on the money market through the multiplicative p in the demand for money equation. Inside money is the money created against private debt.
To complete the analysis we must examine the model from the viewpoint of general equilibrium analysis. Money will, as a result, be non-neutral. Hence, the money is not neutral because the rate of interest cannot be considered to remain unaffected. In each of these markets there is a demand function, there is a supply function and a statement of the equilibrium condition, namely, a statement that prices, wages and interest rate are such that abd amount demanded in the market equals the amount supplied.
However, let us be clear that spending is influenced by, how wealthy people feel they are their portfolio balance and the relation of cash balances to income.