The Barnett Critique

William Barnett, Hyun Park and Sohee Park

MPRA Paper from University Library of Munich, Germany

Abstract: The Barnett critique states that there is an internal inconsistency between the theory that is implied by simple sum monetary aggregation (perfect substitutability among components) and the economic theory that produces the models within which those aggregates are used. That inconsistency causes the appearance of unstable demand and supply for money. The incorrect inference of unstable money demand has caused serious harm to the field of monetary economics. The appearance of instability of the demand for money function disappears, if the relevant neoclassical microeconomic aggregation and index number theories are used to produce the monetary aggregates, which then would nest properly within the money demand functions. In fact, studies of the demand for money function using competently produced monetary aggregates and state-of-the-art demand system modeling methodology have found the demand for money function to be more stable and more easily modeled than the demand for most other consumer goods. See, e.g., Barnett and Serletis (2000, chapters 2, 7, 9, 16, 17, 18, 24), Barnett and Chauvet (2011, chapters 1, 4, 7), and Barnett (2012, pp. 92-110).

Keywords: Divisia monetary aggregates; demand for money; Barnett critique; index number theory; aggregation theory. (search for similar items in EconPapers)
JEL-codes: E4 E41 E5 E51 (search for similar items in EconPapers)
Date: 2021-06-22
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The Barnett Critique (2021)
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