Ravi Kanbur and Anthony J. Venables
- Published in print:
- 2005
- Published Online:
- April 2005
- ISBN:
- 9780199278633
- eISBN:
- 9780191602191
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199278636.003.0002
- Subject:
- Economics and Finance, Development, Growth, and Environmental
Accurate regional estimates of output are desired as an indicator of level of development and as a variable used to explain internal migration, demand patterns, fertility and other aspects of ...
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Accurate regional estimates of output are desired as an indicator of level of development and as a variable used to explain internal migration, demand patterns, fertility and other aspects of behaviour. Explores one often-neglected aspect of regional income differences, namely, that due to price differences or regional purchasing power parities. When nominal regional income measures are adjusted for these price level differences they are termed real regional incomes. The preferred method of estimating regional purchasing power parities by detailed price comparisons is discussed for Brazil, the United States and the European Union. The empirical thrust of the chapter is an investigation of different methods for estimating regional real incomes based on PPP data for 167 countries and nominal regional incomes and other data for about 870 administrative areas at the sub-national level. Even in their present form the authors believe the real income estimates provided for the geographical units present opportunities for understanding the world economic structure.Less
Accurate regional estimates of output are desired as an indicator of level of development and as a variable used to explain internal migration, demand patterns, fertility and other aspects of behaviour. Explores one often-neglected aspect of regional income differences, namely, that due to price differences or regional purchasing power parities. When nominal regional income measures are adjusted for these price level differences they are termed real regional incomes. The preferred method of estimating regional purchasing power parities by detailed price comparisons is discussed for Brazil, the United States and the European Union. The empirical thrust of the chapter is an investigation of different methods for estimating regional real incomes based on PPP data for 167 countries and nominal regional incomes and other data for about 870 administrative areas at the sub-national level. Even in their present form the authors believe the real income estimates provided for the geographical units present opportunities for understanding the world economic structure.
Alfred Maizels, Robert Bacon, and George Mavrotas
- Published in print:
- 1997
- Published Online:
- October 2011
- ISBN:
- 9780198233381
- eISBN:
- 9780191678981
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198233381.003.0005
- Subject:
- Economics and Finance, Development, Growth, and Environmental
In terms of markets for both primary commodities and manufactured goods, a structural surplus in the world market — or one that has resulted from the faster expansion rate of productive capacity and ...
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In terms of markets for both primary commodities and manufactured goods, a structural surplus in the world market — or one that has resulted from the faster expansion rate of productive capacity and production compared to consumption — is reflected through depressed price levels. Governments in developed countries use a series mechanisms of supply management for supporting producing incomes above the minimum in temperate-zone agriculture, steel, shipbuilding, and textile industries. Surpluses in primary commodity markets of export are generally found to reflect a part of a longer economic cycle, specifically for tree crops and their long gestation period. This chapter looks into a supply management approach for beverage crops that aims to benefit not only the producing countries through foreign exchange earnings, but also developed consuming countries as well through reducing price fluctuations.Less
In terms of markets for both primary commodities and manufactured goods, a structural surplus in the world market — or one that has resulted from the faster expansion rate of productive capacity and production compared to consumption — is reflected through depressed price levels. Governments in developed countries use a series mechanisms of supply management for supporting producing incomes above the minimum in temperate-zone agriculture, steel, shipbuilding, and textile industries. Surpluses in primary commodity markets of export are generally found to reflect a part of a longer economic cycle, specifically for tree crops and their long gestation period. This chapter looks into a supply management approach for beverage crops that aims to benefit not only the producing countries through foreign exchange earnings, but also developed consuming countries as well through reducing price fluctuations.
Brigitte Granville
- Published in print:
- 2013
- Published Online:
- October 2017
- ISBN:
- 9780691145402
- eISBN:
- 9781400846443
- Item type:
- book
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691145402.001.0001
- Subject:
- Business and Management, Finance, Accounting, and Banking
Today's global economy, with most developed nations experiencing very low inflation, seems a world apart from the “Great Inflation” that spanned the late 1960s to early 1980s. Yet, this book makes ...
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Today's global economy, with most developed nations experiencing very low inflation, seems a world apart from the “Great Inflation” that spanned the late 1960s to early 1980s. Yet, this book makes the case that monetary economists and policymakers need to keep the lessons learned during that period very much in mind, lest we return to them by making the same mistakes we made in the past. The book details the advances in macroeconomic thinking that gave rise to the “Great Moderation”—a period of stable inflation and economic growth, which lasted from the mid-1980s through the most recent financial crisis. The book makes the case that the central banks' management of monetary policy—hinging on expectations and credibility—brought about this period of stability, and traces the roots of this success back to the eighteenth-century foundations of modern monetary thought. Tackling fundamental questions such as the causes of inflation and its relation to unemployment and growth, the natural rate of inflation hypothesis, the fiscal theory of the price level, and the proper goals of central banks, the book aims above all to demonstrate the dangers of forgetting the role of credibility in establishing sound monetary policy. With the lessons of the past firmly in mind, the book presents stimulating ideas and proposals about inflation-targeting principles, which provide tools for present-day monetary authorities dealing with the forces of globalization, mercantilism, and reserve accumulation.Less
Today's global economy, with most developed nations experiencing very low inflation, seems a world apart from the “Great Inflation” that spanned the late 1960s to early 1980s. Yet, this book makes the case that monetary economists and policymakers need to keep the lessons learned during that period very much in mind, lest we return to them by making the same mistakes we made in the past. The book details the advances in macroeconomic thinking that gave rise to the “Great Moderation”—a period of stable inflation and economic growth, which lasted from the mid-1980s through the most recent financial crisis. The book makes the case that the central banks' management of monetary policy—hinging on expectations and credibility—brought about this period of stability, and traces the roots of this success back to the eighteenth-century foundations of modern monetary thought. Tackling fundamental questions such as the causes of inflation and its relation to unemployment and growth, the natural rate of inflation hypothesis, the fiscal theory of the price level, and the proper goals of central banks, the book aims above all to demonstrate the dangers of forgetting the role of credibility in establishing sound monetary policy. With the lessons of the past firmly in mind, the book presents stimulating ideas and proposals about inflation-targeting principles, which provide tools for present-day monetary authorities dealing with the forces of globalization, mercantilism, and reserve accumulation.
Leonardo Auernheimer
- Published in print:
- 2008
- Published Online:
- August 2013
- ISBN:
- 9780262182669
- eISBN:
- 9780262282284
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262182669.003.0004
- Subject:
- Economics and Finance, Econometrics
This chapter presents a simple continuous-time model with microeconomic foundations and uses it to analyze some of the questions related to the fiscal theory of the price level (FTPL) and to a policy ...
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This chapter presents a simple continuous-time model with microeconomic foundations and uses it to analyze some of the questions related to the fiscal theory of the price level (FTPL) and to a policy of pegging the nominal interest rate. The chapter is organized as follows. Section 1 presents the model and elaborates on some basic points to be addressed. Section 2 considers the case of a “monetary rule,” in which the government sets the path of the money supply, and Section 3 compares the model’s conclusions to some of the propositions in the literature. Section 4 discusses the case of a central bank pegging the nominal interest rate, and Section 5 concludes. It is shown that the hyperinflationary solution as an alternative rational expectations path does not exist (in the context of an exogenous monetary rule) for the general case of a positive rate of monetary expansion. Indeed, there is no reason for the usual statement that such a path is the FTPL alternative to the monetary explanation resulting in a steady-state, noninflationary path of prices and real variables.Less
This chapter presents a simple continuous-time model with microeconomic foundations and uses it to analyze some of the questions related to the fiscal theory of the price level (FTPL) and to a policy of pegging the nominal interest rate. The chapter is organized as follows. Section 1 presents the model and elaborates on some basic points to be addressed. Section 2 considers the case of a “monetary rule,” in which the government sets the path of the money supply, and Section 3 compares the model’s conclusions to some of the propositions in the literature. Section 4 discusses the case of a central bank pegging the nominal interest rate, and Section 5 concludes. It is shown that the hyperinflationary solution as an alternative rational expectations path does not exist (in the context of an exogenous monetary rule) for the general case of a positive rate of monetary expansion. Indeed, there is no reason for the usual statement that such a path is the FTPL alternative to the monetary explanation resulting in a steady-state, noninflationary path of prices and real variables.
Jianjun Li
- Published in print:
- 2009
- Published Online:
- February 2010
- ISBN:
- 9780195380644
- eISBN:
- 9780199869329
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195380644.003.0003
- Subject:
- Economics and Finance, International, South and East Asia
This chapter looks at characteristics of informal finance across China, based on a national survey of firms and banks. During the new turn of macroeconomic regulation and control that started in ...
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This chapter looks at characteristics of informal finance across China, based on a national survey of firms and banks. During the new turn of macroeconomic regulation and control that started in 2003, the Chinese economy, under a process of deregulation, found that repeated government efforts were unable to dampen the climb in investment and consumption prices. Survey analysis was conducted from the perspective of informal finance, underground finance, and illegal finance, which provide foundational references for structural and economic influence in terms of macroeconomic regulation and control, as well as economic decision making. These three types of unobserved finance prevented monetary policy from working effectively during these years of heightened economic growth.Less
This chapter looks at characteristics of informal finance across China, based on a national survey of firms and banks. During the new turn of macroeconomic regulation and control that started in 2003, the Chinese economy, under a process of deregulation, found that repeated government efforts were unable to dampen the climb in investment and consumption prices. Survey analysis was conducted from the perspective of informal finance, underground finance, and illegal finance, which provide foundational references for structural and economic influence in terms of macroeconomic regulation and control, as well as economic decision making. These three types of unobserved finance prevented monetary policy from working effectively during these years of heightened economic growth.
Takatoshi Ito and Frederic S. Mishkin (eds)
- Published in print:
- 2006
- Published Online:
- February 2013
- ISBN:
- 9780226378978
- eISBN:
- 9780226379012
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226379012.003.0005
- Subject:
- Economics and Finance, South and East Asia
This chapter reports a long comprehensive survey of Japanese monetary policy over the last two decades: the period of bubble and burst (1985–1997) and the issue under the new law of the Bank of Japan ...
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This chapter reports a long comprehensive survey of Japanese monetary policy over the last two decades: the period of bubble and burst (1985–1997) and the issue under the new law of the Bank of Japan (BOJ) (1998-). It explores the monetary policy actions to prevent deflation. Given that a bubble is created, the effects from the bursting of the bubble could be moderated by monetary policy. The recent history of Japanese monetary policy has created problems for the Japanese monetary authorities today. These problems present the bank with particular challenges in getting the economy out of deflation quickly. Monetary policy becomes more difficult during deflationary episodes when interest rates hit a floor of zero. Management of expectations through adoption of a price-level target, and nonconventional policies that employ central bank purchases of other assets besides short-term bonds are the key elements of strategies to cure deflation.Less
This chapter reports a long comprehensive survey of Japanese monetary policy over the last two decades: the period of bubble and burst (1985–1997) and the issue under the new law of the Bank of Japan (BOJ) (1998-). It explores the monetary policy actions to prevent deflation. Given that a bubble is created, the effects from the bursting of the bubble could be moderated by monetary policy. The recent history of Japanese monetary policy has created problems for the Japanese monetary authorities today. These problems present the bank with particular challenges in getting the economy out of deflation quickly. Monetary policy becomes more difficult during deflationary episodes when interest rates hit a floor of zero. Management of expectations through adoption of a price-level target, and nonconventional policies that employ central bank purchases of other assets besides short-term bonds are the key elements of strategies to cure deflation.
Peter Clarke
- Published in print:
- 1990
- Published Online:
- October 2011
- ISBN:
- 9780198202196
- eISBN:
- 9780191675201
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198202196.003.0008
- Subject:
- History, British and Irish Modern History, Economic History
The Treatise took shape as two volumes: Volume One, The Pure Theory of Money, and Volume Two, The Applied Theory of Money. When it was published, it was generally agreed that its most original ...
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The Treatise took shape as two volumes: Volume One, The Pure Theory of Money, and Volume Two, The Applied Theory of Money. When it was published, it was generally agreed that its most original contribution to economic analysis was the emphasis laid upon the distinction between saving and investment. What use could be made of monetary policy to encourage enterprise by facilitating investment? This was the practical question to which Keynes's theory gave rise. In the Treatise, Keynes declared that ‘the real task’ of monetary theory was ‘to treat the problem dynamically’ in order ‘to exhibit the causal process by which the price level is determined, and the method of transition from one position of equilibrium to another’.Less
The Treatise took shape as two volumes: Volume One, The Pure Theory of Money, and Volume Two, The Applied Theory of Money. When it was published, it was generally agreed that its most original contribution to economic analysis was the emphasis laid upon the distinction between saving and investment. What use could be made of monetary policy to encourage enterprise by facilitating investment? This was the practical question to which Keynes's theory gave rise. In the Treatise, Keynes declared that ‘the real task’ of monetary theory was ‘to treat the problem dynamically’ in order ‘to exhibit the causal process by which the price level is determined, and the method of transition from one position of equilibrium to another’.
Sydney Afriat
- Published in print:
- 2014
- Published Online:
- April 2014
- ISBN:
- 9780199670581
- eISBN:
- 9780191773785
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670581.001.0001
- Subject:
- Economics and Finance, Econometrics, Microeconomics
A theft amounting to £1 was a capital offence in 1260 and a judge in 1610 affirmed the law could not then be applied since £1 was no longer what it was. Such association of money with a date is well ...
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A theft amounting to £1 was a capital offence in 1260 and a judge in 1610 affirmed the law could not then be applied since £1 was no longer what it was. Such association of money with a date is well recognized for its importance in very many connections. Thus arises the need to know how to convert an amount at one date into the right amount at another date. In other words, a price index. The longstanding question concerning how such an index should be constructed is known as ‘The Index Number Problem’. The ordinary consumer price index or CPI represents a practical response to the need. The truth of a price index is an issue giving rise to extensive thought and theory to which an impressive number of economists have each contributed. However, there have been hold-ups at a basic level. The approach brings the subject into involvement with constructions on the basis of finite data, in particular of price indices, and of utility, already well known in a form usually referred to as ‘Afriat's Theorem’. But utility is subject to constant returns, also possibly approximate. Despite a general importance for economic life and decades of outstanding professional attention, there had been no resolution of the Index Number Problem, nor had there been a real idea what could be meant by such a resolution. However, the method now proposed does convey what could be meant, and it undoubtedly represents the resolution.Less
A theft amounting to £1 was a capital offence in 1260 and a judge in 1610 affirmed the law could not then be applied since £1 was no longer what it was. Such association of money with a date is well recognized for its importance in very many connections. Thus arises the need to know how to convert an amount at one date into the right amount at another date. In other words, a price index. The longstanding question concerning how such an index should be constructed is known as ‘The Index Number Problem’. The ordinary consumer price index or CPI represents a practical response to the need. The truth of a price index is an issue giving rise to extensive thought and theory to which an impressive number of economists have each contributed. However, there have been hold-ups at a basic level. The approach brings the subject into involvement with constructions on the basis of finite data, in particular of price indices, and of utility, already well known in a form usually referred to as ‘Afriat's Theorem’. But utility is subject to constant returns, also possibly approximate. Despite a general importance for economic life and decades of outstanding professional attention, there had been no resolution of the Index Number Problem, nor had there been a real idea what could be meant by such a resolution. However, the method now proposed does convey what could be meant, and it undoubtedly represents the resolution.
Huw Pill and Frank Smets
- Published in print:
- 2013
- Published Online:
- January 2015
- ISBN:
- 9780262018340
- eISBN:
- 9780262305921
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262018340.003.0002
- Subject:
- Economics and Finance, Financial Economics
In the eyes of some, the great financial crisis has raised questions about whether price-stability oriented monetary policy frameworks – that, until only a few years ago, were credited with ...
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In the eyes of some, the great financial crisis has raised questions about whether price-stability oriented monetary policy frameworks – that, until only a few years ago, were credited with supporting a long period of global economic stability – remain appropriate. This chapter evaluates these claims on the basis of the ECB's experience. It argues that: (a) nonstandard policy measures targeted at repairing malfunctioning markets are potentially more efficient instruments to address financial crisis than reducing policy rates to their lower bound. By tackling malfunctioning financial markets directly and re-establishing monetary policy transmission, such measures enhance the effectiveness of the standard interest rate policy instrument and thus serve to achieve macro-stabilisation without inducing greater interest rate volatility; (b) a solid anchoring of inflation expectations stemming from the establishment of credible price stability-oriented policy frameworks has played a crucial role during the crisis, both as an automatic stabiliser and in preventing the emergence of a debt-deflation spiral; (c) analysis of monetary developments helps identify the excessive credit expansion underlying the creation of financial imbalances. All in all, the chapter concludes that the conduct of monetary policy should neither be changed fundamentally nor overburdened with additional objectives.Less
In the eyes of some, the great financial crisis has raised questions about whether price-stability oriented monetary policy frameworks – that, until only a few years ago, were credited with supporting a long period of global economic stability – remain appropriate. This chapter evaluates these claims on the basis of the ECB's experience. It argues that: (a) nonstandard policy measures targeted at repairing malfunctioning markets are potentially more efficient instruments to address financial crisis than reducing policy rates to their lower bound. By tackling malfunctioning financial markets directly and re-establishing monetary policy transmission, such measures enhance the effectiveness of the standard interest rate policy instrument and thus serve to achieve macro-stabilisation without inducing greater interest rate volatility; (b) a solid anchoring of inflation expectations stemming from the establishment of credible price stability-oriented policy frameworks has played a crucial role during the crisis, both as an automatic stabiliser and in preventing the emergence of a debt-deflation spiral; (c) analysis of monetary developments helps identify the excessive credit expansion underlying the creation of financial imbalances. All in all, the chapter concludes that the conduct of monetary policy should neither be changed fundamentally nor overburdened with additional objectives.
Oliver Chinganya, Abdoulaye Adam, and Marc Kouakou
- Published in print:
- 2017
- Published Online:
- September 2017
- ISBN:
- 9781447326632
- eISBN:
- 9781447326663
- Item type:
- chapter
- Publisher:
- Policy Press
- DOI:
- 10.1332/policypress/9781447326632.003.0014
- Subject:
- Political Science, Comparative Politics
The economic growth and development of a country depend on a solid infrastructure and the robustness of systems that have been put in place. Together, these constitute a nation’s “engine of growth” ...
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The economic growth and development of a country depend on a solid infrastructure and the robustness of systems that have been put in place. Together, these constitute a nation’s “engine of growth” and include housing, water, electricity, transportation, communication, and construction. It is postulated that the cost of doing business in Africa is much higher than in other regions, largely because of the poor quality of its infrastructure and to accessibility constraints. The distribution of price levels of these economic drivers, which contribute to the cost of doing business in Africa. Price level indices (PLIs) have been calculated to provide a comparison of the cost of selected infrastructure components across African countries. The data were collected from the 2005 round of the International Comparison Program (ICP) in Africa, covering 48 out of a total of 52 countries and 22 major aggregates of the national accounts.Less
The economic growth and development of a country depend on a solid infrastructure and the robustness of systems that have been put in place. Together, these constitute a nation’s “engine of growth” and include housing, water, electricity, transportation, communication, and construction. It is postulated that the cost of doing business in Africa is much higher than in other regions, largely because of the poor quality of its infrastructure and to accessibility constraints. The distribution of price levels of these economic drivers, which contribute to the cost of doing business in Africa. Price level indices (PLIs) have been calculated to provide a comparison of the cost of selected infrastructure components across African countries. The data were collected from the 2005 round of the International Comparison Program (ICP) in Africa, covering 48 out of a total of 52 countries and 22 major aggregates of the national accounts.
Patrick Legros and Andrew F. Newman
- Published in print:
- 2016
- Published Online:
- January 2016
- ISBN:
- 9780199826223
- eISBN:
- 9780190259020
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199826223.003.0018
- Subject:
- Economics and Finance, Public and Welfare
This chapter and Andrew Newman note that while GH’s paradigm has permeated the field of industrial organization, it is used in a very parsimonious way—the dominant view of the firm being that of a ...
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This chapter and Andrew Newman note that while GH’s paradigm has permeated the field of industrial organization, it is used in a very parsimonious way—the dominant view of the firm being that of a profit maximizing entity. It argues that much is lost by such a restrictive view of the firm, and that an organizational industrial organization (OIO) is feasible and will provide new insights, in particular on the interplay between price levels and integration decisions.Less
This chapter and Andrew Newman note that while GH’s paradigm has permeated the field of industrial organization, it is used in a very parsimonious way—the dominant view of the firm being that of a profit maximizing entity. It argues that much is lost by such a restrictive view of the firm, and that an organizational industrial organization (OIO) is feasible and will provide new insights, in particular on the interplay between price levels and integration decisions.
Robert D. Auerbach
- Published in print:
- 2016
- Published Online:
- August 2016
- ISBN:
- 9780198704324
- eISBN:
- 9780191773761
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198704324.003.0023
- Subject:
- Economics and Finance, Economic History, Macro- and Monetary Economics
This chapter discusses Milton Friedman’s research on the effects of changes in the money supply and government deficit spending on price levels, stock prices and private income. Robert Auerbach’s ...
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This chapter discusses Milton Friedman’s research on the effects of changes in the money supply and government deficit spending on price levels, stock prices and private income. Robert Auerbach’s 1969 dissertation, under the supervision of Friedman and Henri Theil, found that borrowed US government deficits had no significant effect on nominal private income during the 1930s depression and the post-Second World War period until 1967 in the USA. The wealth effect on the US economy from government deficits borrowed from foreign sources is described as negative after the September 2008 financial crisis. Auerbach’s research, some with Jack Rutner, using prewhitened data for causality tests, contradicts Friedman’s findings of causality from money to price levels, and stock prices. The increased instability of the demand for money, as it is currently defined, is shown to be made substantially more unstable from the introduction of the public Internet in the 1980s.Less
This chapter discusses Milton Friedman’s research on the effects of changes in the money supply and government deficit spending on price levels, stock prices and private income. Robert Auerbach’s 1969 dissertation, under the supervision of Friedman and Henri Theil, found that borrowed US government deficits had no significant effect on nominal private income during the 1930s depression and the post-Second World War period until 1967 in the USA. The wealth effect on the US economy from government deficits borrowed from foreign sources is described as negative after the September 2008 financial crisis. Auerbach’s research, some with Jack Rutner, using prewhitened data for causality tests, contradicts Friedman’s findings of causality from money to price levels, and stock prices. The increased instability of the demand for money, as it is currently defined, is shown to be made substantially more unstable from the introduction of the public Internet in the 1980s.
S. N. Afriat
- Published in print:
- 2014
- Published Online:
- April 2014
- ISBN:
- 9780199670581
- eISBN:
- 9780191773785
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670581.003.0003
- Subject:
- Economics and Finance, Econometrics, Microeconomics
This chapter discusses the power algorithm central to the proposed method for solving the Index Number Problem. It explains the construction of a fitting constant returns utility as provided by the ...
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This chapter discusses the power algorithm central to the proposed method for solving the Index Number Problem. It explains the construction of a fitting constant returns utility as provided by the Conical Utility Construction Theorem (CUCT), comparable with the ordinary UCT (or ‘Afriat's Theorem’) except that the utility has to be constant returns; and what a price index should have to do with such a utility. It shows that with the New Formula, price levels enter into the construction of a hypothetical underlying utility which fits the given demand data and represents all these indices together as true.Less
This chapter discusses the power algorithm central to the proposed method for solving the Index Number Problem. It explains the construction of a fitting constant returns utility as provided by the Conical Utility Construction Theorem (CUCT), comparable with the ordinary UCT (or ‘Afriat's Theorem’) except that the utility has to be constant returns; and what a price index should have to do with such a utility. It shows that with the New Formula, price levels enter into the construction of a hypothetical underlying utility which fits the given demand data and represents all these indices together as true.
John Eatwell and Murray Milgate
- Published in print:
- 2011
- Published Online:
- April 2015
- ISBN:
- 9780199777693
- eISBN:
- 9780190261344
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:osobl/9780199777693.003.0013
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter examines the theoretical foundations of monetarism and the nature of the relationship between the general price level and quantity of money. It focuses on interrelated sources of ...
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This chapter examines the theoretical foundations of monetarism and the nature of the relationship between the general price level and quantity of money. It focuses on interrelated sources of confusion in contemporary monetary debates, such as the belief of some economists that they are advancing different theories that are fundamentally the same and the use by economists of different conceptions of equilibrium, which lead to different interpretations of the role of imperfections in short-run and long-run analyses.Less
This chapter examines the theoretical foundations of monetarism and the nature of the relationship between the general price level and quantity of money. It focuses on interrelated sources of confusion in contemporary monetary debates, such as the belief of some economists that they are advancing different theories that are fundamentally the same and the use by economists of different conceptions of equilibrium, which lead to different interpretations of the role of imperfections in short-run and long-run analyses.
Michael D. Bordo
- Published in print:
- 2016
- Published Online:
- August 2016
- ISBN:
- 9780198704324
- eISBN:
- 9780191773761
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198704324.003.0008
- Subject:
- Economics and Finance, Economic History, Macro- and Monetary Economics
Milton Friedman was one of the greatest economists of the twentieth century. He also was a leading economic historian. His book with Anna Jacobson Schwartz, A Monetary History of the United States, ...
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Milton Friedman was one of the greatest economists of the twentieth century. He also was a leading economic historian. His book with Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960, has remained one of the most influential in economics since its publication in 1963. A Monetary History is a study of the quantity of money and its influence on economic activity and the price level in the US economy over nearly a century, marked by drastic changes in monetary arrangements and the structure of the economy. A key finding is that the money–income relationship is invariant to changes in economic arrangements. Friedman and Schwartz pioneered the narrative approach to identify the independent influences of monetary forces on the economy. This approach is the most enduring legacy of A Monetary History.Less
Milton Friedman was one of the greatest economists of the twentieth century. He also was a leading economic historian. His book with Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960, has remained one of the most influential in economics since its publication in 1963. A Monetary History is a study of the quantity of money and its influence on economic activity and the price level in the US economy over nearly a century, marked by drastic changes in monetary arrangements and the structure of the economy. A key finding is that the money–income relationship is invariant to changes in economic arrangements. Friedman and Schwartz pioneered the narrative approach to identify the independent influences of monetary forces on the economy. This approach is the most enduring legacy of A Monetary History.
S. N. Afriat
- Published in print:
- 2014
- Published Online:
- April 2014
- ISBN:
- 9780199670581
- eISBN:
- 9780191773785
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670581.003.0007
- Subject:
- Economics and Finance, Econometrics, Microeconomics
The price index, a pervasive and old institution of economics, is a number issued by the Statistical Office that should tell anyone the ratio of costs for maintaining a given standard of living in ...
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The price index, a pervasive and old institution of economics, is a number issued by the Statistical Office that should tell anyone the ratio of costs for maintaining a given standard of living in two periods where prices differ. This picturesque indication amounts to a definition that is the basis for our approach. An immediate consequence by simple argument is the ‘New Formula’, where price indices are determined as ratios of numbers with the role of price levels that are solutions of a system of inequalities. Work on the approach continues and the system of inequalities is a reminder of a half century of experience including the present chapter.Less
The price index, a pervasive and old institution of economics, is a number issued by the Statistical Office that should tell anyone the ratio of costs for maintaining a given standard of living in two periods where prices differ. This picturesque indication amounts to a definition that is the basis for our approach. An immediate consequence by simple argument is the ‘New Formula’, where price indices are determined as ratios of numbers with the role of price levels that are solutions of a system of inequalities. Work on the approach continues and the system of inequalities is a reminder of a half century of experience including the present chapter.
S. N. Afriat
- Published in print:
- 2014
- Published Online:
- April 2014
- ISBN:
- 9780199670581
- eISBN:
- 9780191773785
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670581.003.0009
- Subject:
- Economics and Finance, Econometrics, Microeconomics
The proposal that demand is governed by utility leads to the question of how to arrive at the utility, from evidence provided by the demand. For while demand is, in principle, directly observable, ...
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The proposal that demand is governed by utility leads to the question of how to arrive at the utility, from evidence provided by the demand. For while demand is, in principle, directly observable, utility is not; it is just discussed, usually for its part in an explanation of demand. The question became a basis for mathematical questions making an enlargement of ‘mathematical economics’ where a host have contributed a variety of fragments. This chapter has to deal specifically with two construction topics, involving a demand function, or a finite demand correspondence. Pareto (1901) touched the utility construction question, dealing with a demand function, and remarked it could be done by solving certain partial differential equations. These referred to the inverse of the function. Volterra (1906) pointed out, in a review of Pareto, that the existence of a solution was not always assured but required certain ‘integrability conditions’, such as had been provided by a theorem of Frobenius. Thereafter the question became known as the ‘integrability problem’. Antonelli (1886) provided equivalent conditions, stated in the form of a symmetry. Slutsky (1915) did the same, by differentiation of first order Lagrange conditions, and brought into view the further necessary (in fact, more than necessary) second-order conditions. The approach gained a currency after rediscovery by Hicks and Allen (1934). Besides symmetry, the Slutsky matrix was required to have a negativity condition, intermediate between its being non-positive and negative definite and different from both. That this negativity requirement found by these discoverers had to be spurious is demonstrated by ‘The Case of the Vanishing Slutsky Matrix’ found by Afriat (1972), where there is a continuously differentiable demand function that has a utility but the Slutsky coefficients all vanish identically, as would be impossible under the negativity condition of Slutsky and the others. Lionel McKenzie (1957) made an elegant departure when he identified the Slutsky coefficient matrix with the matrix of second derivatives of a utility-cost function, so necessarily both symmetric and non-positive definite. The issue of sufficiency that had always remained completely without mention was taken up and settled by Afriat (1980). Afriat (1977, 1980) dealt with the same question when the demand function is replaced by a finite demand correspondence (1956, 1960), with the result now usually referred to as ‘Afriat's Theorem’.Less
The proposal that demand is governed by utility leads to the question of how to arrive at the utility, from evidence provided by the demand. For while demand is, in principle, directly observable, utility is not; it is just discussed, usually for its part in an explanation of demand. The question became a basis for mathematical questions making an enlargement of ‘mathematical economics’ where a host have contributed a variety of fragments. This chapter has to deal specifically with two construction topics, involving a demand function, or a finite demand correspondence. Pareto (1901) touched the utility construction question, dealing with a demand function, and remarked it could be done by solving certain partial differential equations. These referred to the inverse of the function. Volterra (1906) pointed out, in a review of Pareto, that the existence of a solution was not always assured but required certain ‘integrability conditions’, such as had been provided by a theorem of Frobenius. Thereafter the question became known as the ‘integrability problem’. Antonelli (1886) provided equivalent conditions, stated in the form of a symmetry. Slutsky (1915) did the same, by differentiation of first order Lagrange conditions, and brought into view the further necessary (in fact, more than necessary) second-order conditions. The approach gained a currency after rediscovery by Hicks and Allen (1934). Besides symmetry, the Slutsky matrix was required to have a negativity condition, intermediate between its being non-positive and negative definite and different from both. That this negativity requirement found by these discoverers had to be spurious is demonstrated by ‘The Case of the Vanishing Slutsky Matrix’ found by Afriat (1972), where there is a continuously differentiable demand function that has a utility but the Slutsky coefficients all vanish identically, as would be impossible under the negativity condition of Slutsky and the others. Lionel McKenzie (1957) made an elegant departure when he identified the Slutsky coefficient matrix with the matrix of second derivatives of a utility-cost function, so necessarily both symmetric and non-positive definite. The issue of sufficiency that had always remained completely without mention was taken up and settled by Afriat (1980). Afriat (1977, 1980) dealt with the same question when the demand function is replaced by a finite demand correspondence (1956, 1960), with the result now usually referred to as ‘Afriat's Theorem’.
S. N. Afriat
- Published in print:
- 2014
- Published Online:
- April 2014
- ISBN:
- 9780199670581
- eISBN:
- 9780191773785
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670581.003.0011
- Subject:
- Economics and Finance, Econometrics, Microeconomics
Relations by which demand and utility are connected have variants and alternative expressions; and parts generally independent become interdependent under assumptions about the utility. This ...
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Relations by which demand and utility are connected have variants and alternative expressions; and parts generally independent become interdependent under assumptions about the utility. This investigation serves to elaborate and systemize principal phases in the development of such connections. A review about binary relations and orders, which includes Szpilrajn's theorem on order refinement, is followed by an account of efficiency concepts relevant to the demand-utility relationship. Then follows a study of properties of the utility-cost function, basic to McKenzie's approach to necessity of Slutsky conditions, to be consolidated and joined with a treatment of the much more complex sufficiency side. Introduction of the normal demand function, and normalization of the standard demand function, is preliminary to elaborations on the revealed preference principle of Samuelson, extended by Houthakker. Remaining topics concern general demand correspondences, direct and indirect utility, duality, and the canonical order.Less
Relations by which demand and utility are connected have variants and alternative expressions; and parts generally independent become interdependent under assumptions about the utility. This investigation serves to elaborate and systemize principal phases in the development of such connections. A review about binary relations and orders, which includes Szpilrajn's theorem on order refinement, is followed by an account of efficiency concepts relevant to the demand-utility relationship. Then follows a study of properties of the utility-cost function, basic to McKenzie's approach to necessity of Slutsky conditions, to be consolidated and joined with a treatment of the much more complex sufficiency side. Introduction of the normal demand function, and normalization of the standard demand function, is preliminary to elaborations on the revealed preference principle of Samuelson, extended by Houthakker. Remaining topics concern general demand correspondences, direct and indirect utility, duality, and the canonical order.
S. N. Afriat
- Published in print:
- 2014
- Published Online:
- April 2014
- ISBN:
- 9780199670581
- eISBN:
- 9780191773785
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670581.003.0008
- Subject:
- Economics and Finance, Econometrics, Microeconomics
A first step in the examination of an act is to view it as a choice. With a choice there is the problem of accounting for the singularity of what is done which differentiates it in the variety of ...
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A first step in the examination of an act is to view it as a choice. With a choice there is the problem of accounting for the singularity of what is done which differentiates it in the variety of what might have been done. The account should involve a principle that applies uniformly to the possibilities, yet singles out the particular act, in terms of its cause, the motive, or objective. Value is a term serving that principle, with preference as a concept for its expression. Whatever the scope of the concept of choice and systematization of choice by preference, here to have attention, it remains just a model, a form of representation, a scheme that can always be applied to behaviour in some fashion, even without assured significance. The model of a choice system based on a preference order is a habit in particular for economics; even in a more general perspective, order appears as an almost invariable component in measurement, though there may be some puzzle about that. Principles concerning choice and preference are to be considered and illustrated, in particular in regard to the analysis of consumption. An approach to the theory of consumption is developed by considering a scheme of consumption data, and then questions that might be asked of that data.Less
A first step in the examination of an act is to view it as a choice. With a choice there is the problem of accounting for the singularity of what is done which differentiates it in the variety of what might have been done. The account should involve a principle that applies uniformly to the possibilities, yet singles out the particular act, in terms of its cause, the motive, or objective. Value is a term serving that principle, with preference as a concept for its expression. Whatever the scope of the concept of choice and systematization of choice by preference, here to have attention, it remains just a model, a form of representation, a scheme that can always be applied to behaviour in some fashion, even without assured significance. The model of a choice system based on a preference order is a habit in particular for economics; even in a more general perspective, order appears as an almost invariable component in measurement, though there may be some puzzle about that. Principles concerning choice and preference are to be considered and illustrated, in particular in regard to the analysis of consumption. An approach to the theory of consumption is developed by considering a scheme of consumption data, and then questions that might be asked of that data.
S. N. Afriat
- Published in print:
- 2014
- Published Online:
- April 2014
- ISBN:
- 9780199670581
- eISBN:
- 9780191773785
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199670581.003.0012
- Subject:
- Economics and Finance, Econometrics, Microeconomics
The revealed preference method of Samuelson and Houthakker, dealing with the existence of a numerical utility fitting a given demand function, is examined again. After discussion of the method and ...
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The revealed preference method of Samuelson and Houthakker, dealing with the existence of a numerical utility fitting a given demand function, is examined again. After discussion of the method and proof of a related theorem, another development is proposed, resolving defects in the original approach which have persisted despite repeated attention. Their argument depends on invertibility of the demand function and is readapted to be free of that restriction. Also it needs to be taken a step further to reach the required conclusion. Besides providing the wanted gain in generality, a monotonicity argument with a dual approach, depending on mathematical auxiliaries which, together with the monotonicity, are a main contribution of this chapter, settles problematic convergence questions.Less
The revealed preference method of Samuelson and Houthakker, dealing with the existence of a numerical utility fitting a given demand function, is examined again. After discussion of the method and proof of a related theorem, another development is proposed, resolving defects in the original approach which have persisted despite repeated attention. Their argument depends on invertibility of the demand function and is readapted to be free of that restriction. Also it needs to be taken a step further to reach the required conclusion. Besides providing the wanted gain in generality, a monotonicity argument with a dual approach, depending on mathematical auxiliaries which, together with the monotonicity, are a main contribution of this chapter, settles problematic convergence questions.
