New Developments in Monetary Economics: Two ghosts, Two Eccentricities, a Fallacy, a Mirage and a Mythos

Willem Buiter

Economic Journal, 2005, vol. 115, issue 502, C1-C31

Abstract: Monetary theory and policy are part of intertemporal public finance. The two "ghosts" are the liquidity trap and the real balance effect. The "eccentricities" are negative nominal interest rates and the helicopter drop of money. The "fallacy" is the Fiscal Theory of the Price Level, a logically inconsistent theory of the link between the government's intertemporal budget constraint and the general price level. The "mirage" is the prediction that financial deregulation and technical change in the payments and settlements technology will cause monetary policy to lose its capacity to influence even nominal economic variables. "Mythos" refers to the independent central bank. Copyright 2005 Royal Economic Society.

Date: 2005
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