On the Empirical Existence of a Monetarisi Steady State
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On the Empirical Existence of a Monetarisi Steady State
Credit and Capital Markets – Kredit und Kapital, Vol. 14 (1981), Iss. 3 : pp. 350–383
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Moosa, Suleman A.
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Abstract
On the Existence of a Monetarist Steady State
The worldwide acceleration of inflation over the last decade has been associated with (and apparently responsible for) an ascendancy of the Monetarist school of thought. Monetarist-inspired models make a sharp distinction between nominal and real variables and rely heavily, in line with Classical tradition, on steady state solutions to draw inferences about economic policy. Accordingly, both the existence of a particular steady state, and the rate of convergence of economic variables to (or the extent and nature of their departure from) their steady state values become of not inconsiderable interest. That is especially the case if the rate of time preference is positive. A variable of particular interest is the behavior of velocity growth. Even though Monetarist models differ in some matters of detail they all, explicitly or implicitly, assign a pivotal role to the behavior of velocity growth. It is assumed to equal zero or a technologically-determined constant in steady state equilibrium. By contrast, alternative models, say of unemployment, economic growth or inflation, explicity or implicity, have velocity growth take on (behaviorally-explained) non-constant values. This paper examines the steady state and related properties of velocity growth by using Friedman’s widely discussed Monetarist model as the point of departure.