THE CENTRAL BANK ISSUING POLICY AND FISHERS EQUATION OF EXCHANGE

Richard Pospisil ()
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Richard Pospisil: Palacky University Olomouc, Czech Republic

Global Economic Observer, 2013, vol. 1, issue 1, 57-65

Abstract: The issue of money and establishing interest rates are the main activities of central banks. Through this, the banks immediately influence the behaviour of households, companies, financial markets and the state with the impact on real outcome, employment and prices. When monitoring the issue of money, it is necessary to focus not only on its volume, but also on the attributes and functions carried by money. Among the first economists who considered the quality monetary aspect were J. Locke, D. Hume, D. Ricardo and others. The founders of modern monetarism of the 20th century were I. Fisher and M. Friedman. Fisher was the first to define the equation of monetary equilibrium in the present-day form. The objective of the paper is to point out different approaches to the equation and its modifications and different meanings of its variables. As regards the monetary aggregate M - Money - the paper also deals with the denomination of the aggregate to its various elements, which is significant for fulfilling monetary policy targets. This approach is very important especially at present in the time of crisis when central banks are performing their policy considering contradictory targets of price stability and economic growth.

Keywords: issue of money; central bank; monetary policy; monetary equilibrium; money aggregates; monetarism; Irving Fisher; Milton Friedman (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2013-05
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