We found a match
Your institution may have rights to this item. Sign in to continue.
- Title
MONETARY POLICY EFFECTIVENESS: THE CASE OF A POSITIVELY SLOPED I S CURVE.
- Authors
SILBER, WILLIAM L.
- Abstract
One of the basic results of the traditional Keynesian model is that the greater the interest sensitivity of the demand for money, the less effective is monetary policy. In the limit, when the demand for money is infinitely interest elastic, the LM curve is horizontal, the economy is in a liquidity trap and monetary policy has no effect on GNP. Conversely, when the interest rate does not appear as an argument in the money demand function, leaving money demand a function of income only, monetary policy is all powerful. In this case, the economy is in the "classical" range where a change in money supply (M) produces a change in GNP equal to A M.V, where V is velocity. Friedman's early empirical work demonstrating that money demand was not (very) sensitive to interest rates was used to support the position that changes in money supply have a powerful impact on GNP. Indeed, most monetarists and neo-Keynesians who have produced empirical evidence showing a small interest sensitivity of money demand have concluded that this is synonymous with a more powerful impact of monetary disturbances on GNP than otherwise.
- Subjects
ECONOMIC statistics; MONETARY policy; INTEREST rates; GROSS national product; KEYNESIAN economics; ECONOMIC indicators
- Publication
Journal of Finance (Wiley-Blackwell), 1971, Vol 26, Issue 5, p1077
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.1971.tb01749.x