Abstract
Governments supply money not only for use in everyday transactions but also, in the modern era, in order to influence their economies. In most advanced industrialized economies the demand for money is sufficiently unstable to make the quantity of money supplied, or its growth rate, an unreliable guide to how monetary policy influences either prices or real economic activity. Most central banks therefore set a designated interest rate, not the quantity or growth of money supplied. But because money supply and money demand help determine market interest rates, the money supply process remains essential to analysing how monetary policy operates.
This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume
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Friedman, B.M. (2008). Money Supply. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_875-2
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DOI: https://doi.org/10.1057/978-1-349-95121-5_875-2
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Chapter history
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Latest
Money Supply- Published:
- 29 March 2017
DOI: https://doi.org/10.1057/978-1-349-95121-5_875-2
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Original
Money Supply- Published:
- 10 November 2016
DOI: https://doi.org/10.1057/978-1-349-95121-5_875-1