Friday, March 4, 2016

The Arthurian — James Hamilton on Velocity

One thing that the graph shows is that V is not constant as monetarists have assumed.

Why does V fall (rise) as M rises (falls)?

V falls a saving desire (liquidity preference) increases. This happens when conditions result in loss of confidence and retreat to safety. Then the central bank lowers the interest rate and increases liquidity to offset the disinflationary pressure from demand leakage to saving.

The New Arthurian Economics
Hamilton on Velocity
The Arthurian

No comments: