《货币经济学》课程文献阅读：Role of Money and Monetary Policy（Brunner,1968）

and consequently failed to understand the major im- B. A Monetarist Examination of the New plications of these theorie Views Money Supply Theory For instance, they failed to recognize the role as signed by the Monetarist view to banks' behavior and Three sources of the confict have been discussed thus far. Two sources were revealed as logical mis The objection raised by the New View that "the construals, involving inadequate construction and as formula [expressing a basic framework used to form sessment of empirical theories. a third source pertains ulate the hypothesis] obscures the important role to legitimate differences in research strategy. These played by the public"has neither analytical basis three sources do not explain all major aspects of the nor meaning. In fact, the place of the public's b conflict. Beyond the differences in research strategy havior was discussed in the Monetarist hypotheses in and logical misconceptions, genuinely substantive some detail moreover, the same analysis discussed issues remain. Some comments of protagonists advo cating the New View should probably be interpreted dominates movements of the money stock and bank as conjectures about hypotheses to be expected from credit.10 It also yielded information about the re- their research strategy. It should be clearly under sponse of bank credit, money stock and time de stood that such conjectures are not logical implications posits to changes in ceiling rates, or to changes in of the guiding framework. Instead, they are pragmatic the speed with which banks adjust their deposit. responses to the general emphasis associated with this supply conditions to evolving market situations. Every approach single aspect of the banks' or the public's behavior A first conjecture suggests that the money stock emphasized by the countercritique has been analyzed and bank credit are dominated by the public's and the by the Monetarists hypotheses in terms which render banks' behavior. It is suggested, therefore, that cy- he results empirically assessable. Little remains, chical fluctuations of monetary growth result primarily consequently, of the suggestive countercritique as- from the responses of banks and the public to chang sembled in the papers by Gramley-Chase, Kareken ing business conditions. A second conjecture naturally and Cacy. 1 supplements the above assertions. It is contended that the money stock is a thoroughly "untrustworthy 10TI der will find this analysis in the following papers nterest Rate Articles by Gramley-Chase and Kareken attempt and Allan H to support these conjectures with the aid of more plicit analytical formulations allegedly ③p: Honor of Marco Fanno, Padova, Ita,s the general program of the New View. The paper 11The reader is, of course, aware that these assertions req contributed by Grarmley-Chase has been critically ex amined in detail on another occasion, 12 and only some ould check for himself. If he crucial aspects relevant for our present purposes will of the Monetarists' major be considered at this point. Various aspects of the detailed analysis of the banks'and the public's role in the section. The second conjecture is examined in sec- tions d and e In ou books. This analysis, by its very existence, falsifies some of California at Los Angeles, 1966 of an innocuous achievement was sup qualifying an empirical statement always yields a sta formative. The limit establishe New View or Any View, just as we always knew that may or may not rain tomorrow. hould not her ations arch 2The read eserve PolIc tary analys y Karl brunner footnote 9 1966),and the study by Peter Frost,"Banks' Demand for ontributions by Patric H. Hendershott and Robert We survey critically the issues raised by the gramley Excess Reserves, an unpublished dissertation submitted to Page 13

and consequently failed to understand the major im￾plications of these theories. For instance, they failed to recognize the role as￾signed by the Monetarist view to banks’ behavior and the public’s preferences in the monetary process. The objection raised by the New View that “the formula [expressing a basic framework used to form￾ulate the hypothesis] obscures the important role played by the public” has neither analytical basis nor meaning. In fact, the place of the public’s be￾havior was discussed in the Monetarist hypotheses in some detail. Moreover, the same analysis discussed the conditions under which the public’s behavior dominates movements of the money stock and bank credit.b0 It also yielded information about the re￾sponse of bank credit, money stock and time de￾posits to changes in ceiling rates, or to changes in the speed with which banks adjust their deposit￾supply conditions to evolving market situations. Every single aspect of the banks’ or the public’s behavior emphasized by the countercritique has been analyzed by the Monetarist’s hypotheses in terms which render the results empirically assessable. Little remains, consequently, of the suggestive countercritique as￾sembled in the papers by Gramley-Chase, Kareken and Cacy.” 10 The reader will find this analysis in the following papers: Karl Brunner and Allan H, Meltzer, “Liquidity Traps for Money, Bank Credit, and Interest Rates,” Journal of Political Economy, April 1968. Karl Brunner and Allan H. Meltzer, “A Credit-Market Theory of the Money Supply and an Explanation of Two Puzzles in U.S. Monetary Policy, Essays in Honor of Marco Fanno, Padova, Italy, 1966. B. A Monetarist Examination of the New View’s Money Supply Theory Three sources of the conflict have been discussed thus far. Two sources were revealed as logical mis￾construals, involving inadequate construction and as￾sessment of empirical theories. A third source pertains to legitimate differences in research strategy. These three sources do not explain all major aspects of the conflict. Beyond the differences in research strategy and logical misconceptions, genuinely substantive issues remain. Some comments of protagonists advo￾cating the Ne\v View should probably be interpreted as conjectures about hypotheses to be expected from their research strategy. It should be clearly under￾stood that such conjectures are not logical implications of the guiding framework. Instead, they are pragmatic responses to the general emphasis associated with this approach. A first conjecture suggests that the money stock and bank credit are dominated by the public’s and the banks’ behavior. It is suggested, therefore, that cy￾clical fluctuations of monetary growth result primarily from the responses of banks and the public to chang￾ing business conditions. A second conjecture naturally supplements the above assertions, It is contended that the money stock is a thoroughly “untrustworthy guide to monetary policy”. Articles by Gramley-Chase and Kareken attempt to support these conjectures with the aid of more explicit analytical formulations allegedly expressing the general program of the New View. The paper contributed by Gramley-Chase has been critically ex￾amined in detail on another occasion,’2 and only some crucial aspects relevant for our present purposes will be considered at this point. Various aspects of the first conjecture are examined in this and the next section. The second conjecture is examined in sec￾tions D and E. liThe reader is, of course, aware that these assertions require analytic substantiation. Such substantiation cannot be sup￾plied within the confines of this article. But the reader could check for himself. If he finds, in the context of the countercritique, an analysis of the Monetarists’ major hypotheses, an examination of implication, and exposure to observations, I would have to withdraw my statements. A detailed analysis of the banks’ and the public’s role ia the money supply, based on two different hypotheses previously reported in our papers will be developed in our forthcoming books. This analysis, by its very existence, falsifies some major objections made by Cacy or Gramley-Chase. Much of their criticism is either innocuous or fatuous. Gramley￾Chase indulge, for instance, in modality statements, i.e. statements obtained from other statements by prefixing a modality qualifier like “maybe” or “possibly.” The result of qualifying an empirical statement always yields a statement which is necessarily true but also quite uninformative. The modality game thus yields logically pointless but psycho￾logically effective sentences. Cacy manages, on the other hand, some astonishing assertions. The New View is credited with the discovery that excess reserves vary over time. He totally disregards the major contributions to the analysis of excess reserves emanating from the Monetarists’ research. A detailed analysis of excess reserves was developed by Milton Friedman and Anna Schwartz in the book men￾tioned in footnote 9. The reader should also note the work by Ceorge Morrison, Liquidity Preferences of Com￾mercial Banks, (Chicago: University of Chicago Press, 1966), and the study by Peter Frost, “Banks’ Demand for Excess Reserves,” an unpublished dissertation submitted to the University of California at Los Angeles, 1966. The classic example of an innocuous achievement wns supplied by Cacy with the assertion: the actual volume of money balances determined by competitive market forces may or may not be equal to the upper limit established by the central bank.” (p. 8). Indeed, we knew this before the New View or Any View, just as we always knew that “it may or may not rain tomorrow.” The reader should note that similar statements were produced by other authors with all the appearances of menningful elaborations. ‘ 2 The reader may consult my chapter “Federal Reserve Policy and Monetary Analysis” in Indicators and Targets of Mone￾tary Policy, ed., by Karl Brunner, to be published by Chan￾dler House Publishing Co., San Francisco. This book also contains the original article by Gramley-Chnse. Further contributions by Patric H. Hendershott and Robert Weintraub survey critically the issues raised by the Cramley.Chase paper. Page 13

a detailed analysis of the Gramley-Chase model ABe and AY. This information has not been pro demonstrates that it implies the following reduced by the authors. form equations explaining the money stock(M)and Most interesting is another aspect of the model bank credit(E)in terms of the extended monetary which was not clarified by the authors. Their model E=h(Be, Y,c) h>0> h2, and h1> g1, cyclical movements in AM. This model exemplifying base(Be),the level of economic activity expressed the New view thus yields little justification for the by national income at current prices(),and the ceiling rate on time deposits(c). 14 conjectures of its proponents The Gramley-Chase model implies that monetary A central property of the Gramley-Chase model policy does affect the money stock and bank credit must be considered in the light of the programmatic statements characterizing the New View. Gramley It also implies that the money stock responds posi- Chase do not differentiate between the public's asset tively and bank credit negatively to economic activity. This model thus differs from the Monetarist hypothe- This procedure violates the basic program of the ses which imply that both bank credit and the money New View, namely, to apply economic analysis to an stock respond positively to economic activity. The array of financial assets and financial institutions Gramley-Chase model also implies that the responses Economic analysis implies that the public's asset sup of both the money stock and bank credit to mone- ply and money demand are distinct, and not identical tary actions are independent of the general scale of behavior patterns. This difference in behavior pat the public's and the banks'interest elasticities. Uni- terns is clearly revealed by different responses of formly large or small interest elasticities yield the esired money balances and desired asset supply to same response in the money stock or bank credit to specific stimuli in the environment. For instance,an a change in the monetary base. increase in the expected real yield on real capita A detailed discussion of the implications derivable raises the public's asset supply but lowers the public's from a meaningfully supplemented Gramley-Chase money demand. It follows thus that a central analy model is not necessary at this point. We are foremost tical feature of the Gramley-Chase model violates the propositions mentioned in the previous paragraph. View sic and quite relevant program of the New interested in the relation between this model and the The first proposition can be interpreted in two differ Kareken s construction shares this fundamental ent ways. According to one interpretation, it could analytical flaw with the Gramley. Chase model, but mean that the marginal multpliers g and h(i=1, 2) this is not the only problem faced by his analysis are functions of the banksand the public's response The Kareken analysis proceeds on two levels. First, patterns expressing various types of substitution rela- he derives a representative bank's desired balance tions between different assets. This interpretation is, sheet position. For this purpose he postulates wealth however, quite innocuous and yields no differentia tion relative to the questioned hypotheses of the maximization subject to the banks balance sheet Monetarist position. relation between assets and liabilities, and subject to reserve requirements on deposits. On closer examina A second interpretation suggests that the growth tion, this analysis is only applicable to a monopoly ate of the money stock is dominated by the second bank with no conversion of deposits into currency component (changes in income) of the differential or reserve fows to other banks. In order to render expression the analysis relevant for a representative bank in △M=g1△B+g2△Y the world of reality, additional constraints would This result is not actually implied by the gramley have to be introduced which modify the results quite Chase model, but it is certainly consistent with the substantially. It is also noteworthy that the structural model. However, in order to derive the desired result, properties, assigned by Kareken to the system of their model must be supplemented with special as- sumptions about the relative magnitude of g, and g2, implications one can derive from the author's analy and also about the comparative cyclical variability of Iis of firm behavior developed on the first level of his investigation 13In the Gramley-Chase model, g3 and h3 are indeterminant This disregard for the construction of an economic r listed in foot theory relevant for the real world is carried into the reserves by cha liberated from or impounded into related second level of analysis where the author formulates system of relations describing the joint determina Page 14

A detailed analysis of the Graniley-Chase model demonstrates that it implies the following reduced form equations explaining the money stock (M) and bank credit (E) in terms of the extended monetary M=g(BC, Y, c) g1 >0 C g2, E =h(Be, Y, c) h1 > 0 > h2 , and h1 > g1 13 base (Be), the level of economic activity expressed by national income at current prices (Y), and the ceiling rate on time deposits (c).’4 The Gramley-Chase model implies that monetary policy does affect the money stock and bank credit. It also implies that the money stock responds posi￾tively and bank credit negatively to economic activity. This model thus differs from the Monetarist hypothe￾ses which imply that both bank credit and the money stock respond positively to economic activity. The Gramley-Chase model also implies that the responses of both the money stock and bank credit to mone￾tary actions are independent of the general scale of the public’s and the banks’ interest elasticities. Uni￾formly large or small interest elasticities yield the same response in the money stock or bank credit to a change in the monetary base. A detailed discussion of the implications derivable from a meaningfully supplemented Gramley-Chase model is not necessary at this point. We are foremost interested in the relation between this model and the propositions mentioned in the previous paragraph. The first proposition can be interpreted in two differ￾ent ways. According to one interpretation, it could mean that the marginal multipliers g5 and h1 (i = 1, 2) are functions of the banks’ and the public’s response patterns expressing various types of substitution rela￾tions between different assets. This interpretation is, however, quite innocuous and yields no differentia￾tion relative to the questioned hypotheses of the Monetarist position. A second interpretation suggests that the growth rate of the money stock is dominated by the second component (changes in income) of the differential expression: AM = g1 ABC + g2 AY This result is not actually implied by the Gramley￾Chase model, but it is certainly consistent with the model. However, in order to derive the desired result, theft model must be supplemented with special as￾sumptions about the relative magnitude of g, and g 2, and also about the comparative cyclical variability of 181n the Gramley-Chase model, g~and h 3 are indeterminant. t4This implication was demonstrated in my paper listed in foot￾note 12. The monetary base is adjusted for the accumulated sum of reserves liberated from or impounded into required reserves by changes in requirement ratios. ABC and AY. This information has not been provided by the authors. Most interesting is another aspect of the model which was not clarified by the authors. Theft model implies that policymakers could easily avoid pro￾cyclical movements in AM. This model exemplifying the New View thus yields little justification for the conjectures of its proponents. A central property of the Gramley-Chase model must be considered in the light of the programmatic statements characterizing the New View. Gramley￾Chase do not differentiate between the public’s asset supply to banks and the public’s demand for money. This procedure violates the basic program of the New View, namely, to apply economic analysis to an array of financial assets and financial institutions. Economic analysis implies that the public’s asset sup￾ply and money demand are distinct, and not identical behavior patterns. This difference in behavior pat￾terns is clearly revealed by different responses of desired money balances and desired asset supply to specific stimuli in the environment. For instance, an increase in the expected real yield on real capital raises the public’s asset supply but lowers the public’s money demand. It follows thus that a central analy￾tical feature of the Gramley-Chase model violates the basic and quite relevant program of the New View. Kareken’s construction shares this fundamental analytical flaw with the Gramley-Chase model, but this is not the only problem faced by his analysis. The Kareken analysis proceeds on two levels. First, he derives a representative bank’s desired balance sheet position. For this purpose he postulates wealth maximization subject to the bank’s balance sheet relation between assets and liabilities, and subject to reserve requirements on deposits. On closer examina￾tion, this analysis is only applicable to a monopoly bank with no conversion of deposits into currency or reserve flows to other banks. In order to render the analysis relevant for a representative bank in the world of reality, additional constraints would have to be introduced which modify the results quite substantially. it is also noteworthy that the structural properties assigned by Kareken to the system of market relations are logically inconsistent with the implications one can derive from the author’s analy￾sis of finn behavior developed on the first level of his investigation. This disregard for the construction of an economic theory relevant for the real world is carried into the second level of analysis where the author formulates a system of relations describing the joint determina￾Page 14