宏觀經(jīng)濟(jì)學(xué)課件(英文版)10

1、Chapter 10The Demand for Money and the Price Level1Concepts of MoneyOur model has three forms of assets: money, bonds, and ownership of capital.Our analysis in chapters 6-8 under the assumption that each household held a constant stock of money, M.Why households hold part of their assets as money?De

2、mand for money.2Concepts of MoneyAssumed that money is the sole medium of exchange in the economy.Households do not directly exchange goods for goods (a process called barter) or bonds for goods, and so on.The money in our model matches up with paper currency issued by a government.3Concepts of Mone

3、yThese paper currencies are sometimes called fiat money because they have value due to government fiat, rather than through intrinsic value.At earlier times, societies tended to rely more on commodity money, such as gold and silver coins, which do have intrinsic value.4Concepts of MoneyWhy this mone

4、y might occupy the dominant position as an economys medium of exchange?First, the government may impose legal restrictions that prevent private parties, such as Microsoft Corporation, from issuing small-size, interest-bearing bonds that could serve conveniently as hand-to-hand currency.5Concepts of

5、MoneyFurther, the government may enact statutes that reinforce the use of its money. As an example, there is the proclamation that the U.S. dollar is “l(fā)egal tender for all debts public and private.Also, U.S. courts are more inclined to enforce contracts that are denominated in U.S. dollars rather th

6、an in some other unit.6Concepts of MoneyAnother consideration is the cost of establishing ones money as reliable and convenient.Another consideration is the cost of establishing ones money as reliable and convenient.Because of these costs, money would always tend to bear interest at a rate lower tha

7、n bonds.In fact, because of the inconvenience of paying interest on hand-to-hand currency, the interest rate on currency is typically zero.7Concepts of MoneyThe theoretical construct corresponds most closely to currency held by the public.The term “money typically refers to a monetary aggregate that

8、 is broader than currency.The most common definition, called M1, attempts to classify as money the assets that serve regularly as media of exchange.8Concepts of MoneyThis concept adds to currency held by the public the checkable deposits issued by banks and other financial institutions.9Concepts of

9、Money10Concepts of Money11Concepts of MoneyStill broader definitions of money add in other kinds of deposits held at financial institutions.For example, M2 includes household holdings of savings deposits, time deposits, and retail money-market mutual funds.An even broader aggregate, M3, adds in inst

10、itutional money-market funds, large time deposits, repurchase agreements, and Eurodollar accounts.12Concepts of MoneyHowever, the M2 and M3 definitions go beyond the concept of money as a medium of exchange. In our model, it is best to identify money with currency held by the public.13The Demand for

11、 MoneyWe now extend the micro foundations of our model to consider the demand for money.Since we identify money with hand-to-hand currency, we assume that the interest rate paid on money is zero.In contrast, the rate of return on bonds and ownership of capital equals the interest rate, i, which we a

12、ssume is greater than zero.We refer to bonds and ownership of capital as interest-bearing assets.14The Demand for Moneysince households use money to make exchanges, households will hold some money for convenience, rather that always cashing in earning assets immediately prior to each exchange. That

13、is, the demand for money will be greater than zero.15The Demand for MoneyHouseholds receive nominal labor income, wL, and nominal asset income, i(B+PK), in the form of money.Households also use money to buy consumption goods, in the nominal amount PC, and to save, in the nominal amount B + PK.16The

14、Demand for MoneyWe assume, as a general matter, that households can reduce their average money balance by incurring more transaction costs.The general idea is that, by putting more effort into money management and, thereby, incurring more transaction costs, households can reduce their average holdin

15、g of money, M.17The Demand for MoneyFor a given total of nominal assets, M + B + PK, a reduction in M raises the average holding of interest-bearing assets, B + PK.Since asset income is i(B+PK), the rise in B + PK raises asset income. Thus, a households average holding of money, M, emerges from a tr

16、adeoff.18The Demand for MoneyWith a frequent transaction strategy, M will be low and asset income will be high, but transaction costs will also be high.With an infrequent transactions strategy, M will be high and asset income will be low, but transaction costs will also be low. Households choices of

17、 money holdings therefore involve finding the right balance between additional asset income and added transaction costs.19The Demand for Money20The Price Level and the Demand for MoneySuppose that the price level, P, doubles. Assume that the nominal wage rate, w, and the nominal rental price, R, als

18、o double, so that the real wage rate, w/P and the real rental price, R/P, do not change.In this case, household nominal income, wL + i(B+PK), is twice as high as before.However, household real income,(w/P)L + i(B/P + K), is unchanged.21The Price Level and the Demand for MoneyThus, we are considering

19、 a doubling of the nominal values of all variables, with no changes in the real values.In this circumstance, households would also want to double the nominal quantity of money, M, that they hold.This doubling of nominal money means that real money balances, M/P, do not change.the real demand for mon

20、ey, Md/P, is unchanged.22The Interest Rate and the Demand for MoneyA higher interest rate, i, provides a greater incentive to hold down average holdings of money, M, in order to raise average holdings of interest- bearing assets, B+PK. That is, with a higher i, households would be more willing to in

21、cur transaction costs in order to reduce M.For a given price level, P, we can also say that a higher i lowers the real demand for money, Md/P.23Real GDP and the Demand for Moneyreal income = (w/P)L + i(B/P + K).real income = (w/P)L + (R/P)K K.real income = Y K = real net domestic product.Thus, for g

22、iven depreciation, K, the aggregate of household real income is determined by Y. We therefore have that the aggregate real demand for money, Md/P, rises with Y.24Other Influences on Money DemandFor given values of the price level, P, the interest rate, i, and real GDP, Y, money demand depends on the

23、 payments technology and the level of transaction costs.25The Money-Demand Function26The Money-Demand Function27Determination of the Price LevelThe central idea is to add a new equilibrium condition: the quantity of money equals the quantity demanded.28The Quantity of Money Equals the Quantity Deman

24、dedWe assume that money takes the form of currency. We assume further that the nominal quantity of money, M, is determined by the monetary authority.29The Quantity of Money Equals the Quantity Demanded30The Quantity of Money Equals the Quantity Demanded31The Quantity of Money Equals the Quantity Dem

25、andedThis real demand is determined, for a given transactions technology, by real GDP, Y, and the interest rate, i.32The Quantity of Money Equals the Quantity Demanded33The Quantity of Money Equals the Quantity Demanded34The Quantity of Money Equals the Quantity Demanded35The Quantity of Money Equal

26、s the Quantity Demanded36A Change in the Quantity of Money37A Change in the Quantity of MoneyIn particular, we are assuming that real GDP, Y, and the interest rate, i, remain the same. We then found that a doubling of M led to a doubling of P and, hence, to no change in real money balances, M/P. Thi

27、s constancy of M/P is consistent with our assumption that the real demand for money, (Y, i), does not change.38A Change in the Quantity of MoneyThat is, after the doubling of M, we still have that real money balances, M/P, equal the real quantity demanded, (Y, i).If we consider the labor market, we

28、find that the market clearing real wage rate, w/P, does not change.Since the price level, P, doubled, the constancy of w/P means that, in general equilibrium, the nominal wage rate, w, has to double.39A Change in the Quantity of MoneySimilarly, if we look at the rental market for capital services, w

29、e find that the market-clearing real rental price, R/P, does not change.Since the price level, P, doubled and R/P is unchanged, in general equilibrium, the nominal rental price, R, has to double.40A Change in the Quantity of Money41A Change in the Quantity of Money42A Change in the Quantity of Money

30、We have verified that real GDP, Y, and the interest rate, ithe two determinants of real money demand, (Y, i)are unchanged. Therefore, (Y, i) does not change.43A Change in the Quantity of MoneyTo sum up, we find that a doubling of the nominal quantity of money, M, leads to a doubling of all of the no

31、minal pricesthe price level, P, the nominal wage rate, w, and the nominal rental price, R. Hence, there are no changes in real money balances, M/P, the real wage rate, w/P, and the real rental price, R/P.44A Change in the Quantity of MoneyWe also have that the determinants of the real demand for mon

32、ey, (Y, i), remain the same. In particular, the increase in M has no effect on real GDP, Y, or the interest rate, i. Note, however, that nominal GDP equals PY. Since P doubles and Y is unchanged, nominal GDP doubles.45A Change in the Quantity of Money46The Neutrality of MoneyThe results exhibit a pr

33、operty called the neutrality of money.One-time changes in the nominal quantity of money, M, affect nominal variables but leave real variables unchanged.Almost all economists accept the neutrality of money as a valid long-run proposition. That is, in the long run, more or less nominal money, M, in th

34、e economy influences nominal variables but not real ones.47The Neutrality of MoneyHowever, many economists believe that the neutrality of money fails to hold in the short run.In particular, in the short run, increases in the nominal quantity of money, M, are usually thought to increase real GDP, Y,

35、whereas decreases in M are thought to decrease Y.48The Neutrality of MoneyThe main source of the difference in conclusions involves the flexibility of nominal prices, notably the price level, P, and the nominal wage rate, w.49A Change in the Demand for Money50A Change in the Demand for Money51A Chan

36、ge in the Demand for Money52A Change in the Demand for MoneyA change in M is fully neutral, whereas a change in the real demand for money is not fully neutral.53The Cyclical Behavior of the Price Level and Real Money Balances54The Cyclical Behavior of the Price Level and Real Money Balances55The Cyc

37、lical Behavior of the Price Level and Real Money Balances56The Cyclical Behavior of the Price Level and Real Money Balances57The Cyclical Behavior of the Price Level and Real Money Balances58Price-Level Targeting and Endogenous MoneyUp to now, we have assumed that the nominal quantity of money, M, i

38、s constant.This assumption is unrealistic.First, the various measures of M have positive trends, that is, the average growth rate of money is greater than zero.Second, each measure of M tends to fluctuate around its trend. 59Price-Level Targeting and Endogenous MoneySome of these fluctuations reflec

39、t random variations, not controlled by the monetary authority.However, much of the variation likely reflects purposeful monetary policy, aimed at achieving desired values of some of the macroeconomic variables.60Price-Level Targeting and Endogenous MoneyWe assume here that the monetary authority can

40、 determine the path of the nominal quantity of money, M, possibly subject to some uncontrollable random errors.The assumption that the monetary authority can control M is reasonable if we take a narrow view of money as currency held by the public.61Price-Level Targeting and Endogenous MoneyWe assume

41、 now that the monetary authoritys objective is to adjust the nominal quantity of money, M, to achieve stability of the price level, P.This objective is called price-level targeting. In this analysis, M becomes an endogenous variable. That is, M is determined by the model to be the value consistent w

42、ith the monetary authoritys objective, in this case, maintenance of a stable P.62Price-Level Targeting and Endogenous Money63Price-Level Targeting and Endogenous MoneyTo consider the trend in the nominal quantity of money, M, we should return to the analysis of long-run economic growth from the Solow model of chapter 5.We consider the long-run or steady-state situation, in which real GDP, Y, grows at a constant rate due