Advertisement

Rebuilding the Theoretical Model of Inflation on Credit with Loanable Funds

  • D. Gareth Thomas
Chapter

Abstract

In this chapter, the core concepts of inflation, disinflation and deflation with expectations that underpin the credit cycle in Chapter  7 are modelled to provide a theoretical link that relates to the growth of loans and, consequently, to the endogenous flow of the money supply. The idea is to add to Friedman’s notion thatInflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than output’. Now put this into reverse, disinflation and deflation are forever and ubiquitously a monetary occurrence in that it can only happen because of an abrupt decrease in the growth of the money supply, which is less than the expected change in production, leading to real, destabilising effects, triggered by endogenous changes to the desires of commercial banks to create money in the economy.

Keywords

Credit cycle Inflation Disinflation Deflation Money supply Economy 

References and Further Reading

  1. Arestis, P. (2011). New Consensus Macroeconomics: A Critical Appraisal. In E. Hein & E. Stockhammer (Eds.), A Modern Guide to Keynesian Macro-economics and Economic Policies. Cheltenham: Edward Elgar Publishing.Google Scholar
  2. Bårdsen, G., Eitrheim, Ø., Jansen, E. S., & Nymoen, R. (2005). The Econometrics of Macroeconomic Modelling. Oxford: Oxford University Press.Google Scholar
  3. Batini, N., Jackson, B., & Nickell, S. (2000). Inflation Dynamics and the Labour Share in the U.K. (Discussion Paper 2). External MPC Unit, Bank of England.Google Scholar
  4. Bywaters, D. S., & Thomas, D. G. (2011). Real Money Demand and Supply Meets Federal Debt. Applied Economics Letters, 18(12), 1189–1193.CrossRefGoogle Scholar
  5. Clarida, R., Galí, J., & Gertler, M. (1999). The Science of Monetary Policy: A New Keynesian Perspective. Journal of Economic Literature, 37(4), 1661–1707.CrossRefGoogle Scholar
  6. Dornbusch, R., & Fischer, S. (1987). Macroeconomics (4th ed.). Singapore: McGraw-Hill Book Co.Google Scholar
  7. Friedman, M. (1968). The Role of Monetary Policy. American Economic Review, LVIII (March), 1–17.Google Scholar
  8. Galí, J., & Gertler, M. (1999). Inflation Dynamics: A Structural Econometric Analysis. Journal of Monetary Economics, 44(2), 195–222.CrossRefGoogle Scholar
  9. Galí, J., Gertler, M., & López-Salido, D. (2001). European Inflation Dynamics. European Economic Review, 45(7), 1237–1270.CrossRefGoogle Scholar
  10. Hoover, K. D. (1988). The New Classical Macroeconomics: A Sceptical Inquiry. Oxford: Blackwell.Google Scholar
  11. Hoover, K. D., Demiralp, S. & Perez, S. J. (2009). Empirical Identification of the Vector Autoregression: The Causes and Effects of U.S. M2. In Castle, J. and Shephard, N. (Eds.), The Methodology and Practice of Econometrics: A Festschrift in Honour of David F. Hendry. Oxford: Oxford University Press.CrossRefGoogle Scholar
  12. Kerr, W., & King, R. G. (1996). Limits on Interests Rules in the IS Model. Federal Reserve Bank of Richmond, Economic Quarterly, 82, 47–56.Google Scholar
  13. Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: Macmillan and Co., Limited.Google Scholar
  14. Kuttner, K. N. (1994, July). Estimating Potential Output as a Latent Variable. Journal of Business and Economic Statistics, 12(3), 361–368.Google Scholar
  15. Lucas, R. E., Jr. (1981). Studies in Business Cycle Theory. Oxford: Blackwell.Google Scholar
  16. Lucas, R. E., Jr., & Sargent, T. J. (Eds.). (1981). Rational Expectations and Econometric Practice. London: Allen and Unwin.Google Scholar
  17. McMorrow, K., & Roeger, W. (2001, April). Potential Output: Measurement Methods, “New” Economy Influences and Scenarios for 2001–2010—Comparison of the EU-15 and the US. European Economy, Economic Papers, 150, 1–142.Google Scholar
  18. Peacock, A., & Shaw, G. K. (1976). The Economic Theory of Fiscal Policy (Revised Edition). London: George Allen and Unwin, Ltd.Google Scholar
  19. Phelps, E. S. (1968). Money-Wage Dynamics and Labor-Market Equilibrium. Journal of Political Economy, 76, 678–711.CrossRefGoogle Scholar
  20. Rotemberg, J. J. (1982, December). Sticky Prices in the United States. Journal of Political Economy, 90(6), 1187–1211.CrossRefGoogle Scholar
  21. Sbordone, A. (2002). Prices and Unit Labour Costs: A New Test of Price Stickiness. Journal of Monetary Economics, 49(2), 235–456.CrossRefGoogle Scholar
  22. Sheffrin, S. M. (1996). Rational Expectations (2nd ed.). Cambridge: Cambridge University Press.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • D. Gareth Thomas
    • 1
  1. 1.Department of Accounting, Finance and EconomicsUniversity of Hertfordshire Business SchoolHatfieldUK

Personalised recommendations