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Monetary Econ (Wicksellian (non-neutrality) (Keynesians (Keynes (1936)…

- - - - natural (r) vs. market (i) interest rate
        
        "interest rates are relative prices”
        
        natural rate: planned real investment = planned saving
      - i < r: rising investments
        
        more production costs -> + prices
        
        cumulative process
        
        shrinking money reserve -> i = r
        
        full employment
  - - - monetary policies to stabilise prices
    - - value judgments always influence research (Normstreit)
    - - deflation/inflation adjustments
      - demand and supply expectations
  - - - principle of effective demand
        
        against Say’s Law
        
        aggregate expenditure: C + I + Export + G
        
        consumption expectations (demand) determine
        
        employment
        
        supply
        
        investments rise as i < return on capital
        
        marginal efficency
      - interest rate
        
        liquidity preference
        
        vs. demanded money
        
        low rates = liquidity
        
        high rates = bonds
        
        money supply: central bank
      - price formation
        
        money quantity + expectations = capital rate
        
        capital rate -> investment, output, wages
        
        wages and prices are rigid
        
        unionised contracs
        
        changes in demand affect output and employment
      - general theory of static macroeconomic equilibrium
        
        point at which market rate is where total demand (consumption + investments) equals supply
        
        multiplier effect: less I, even less Y
        
        compatible with involuntary unemployment
        
        government intervention in the form of additional public spending (G)
        
        cutting wages
        
        can have negative impacts on total aggregate demand
        
        liquidity preference drives interest rates up and depress investments
        
        focus on short-term dynamics
        
        individual behavoiur
        
        marginal propensity to consume
        
        marginal propensity to save
    - - IS: I = S
        
        I: negatively depends on interest rate
        
        S: positively depends on interest rate
        
        combinations of interest and income that yield equilibria in the capital market
      - equilibrium: IS = LM
        
        full employment / underemployment
        
        underemployment equilibria
        
        liquidity trap
        
        interest rates are low and saving rates are high
        
        monetary policy has no effects
        
        solution: public spending (bonds)
        
        investment trap
        
        marginal efficiency of capital is too low
        
        additional public spending
        
        rigid wages and prices (Keynes)
        
        later work
        
        traps 1) and 2) have only short-term effects
        
        IS-LM does not explain inflation
        
        IS-LM is not a GE model
      - LM: L = M
        
        L: determines money demand together with transaction purposes
        
        M: money supply provided by central bank
        
        combinations of interest and income that yield equilibria in the money market
    - - Phillip curves
        
        trade-off between inflation and employment
        
        monetary policies are not neutral in the long run
    - - monetary economies: uncertain profits & growth process tends to produce unemployment
      - solution: state intervention
    - - reconcile Keynes’ with neoclassical GE
      - false prices
        
        changes in quantities are more flexible than changes in prices (Walras)
        
        rationing
        
        reverberates across markets
        
        adjustments in Y
    - - nominal & real prices/ wages are sticky
        
        monetary policies have real effects on Y and employment
      - micro-foundations of general equilibrium and rational expectations
      - information asymmetries
        
        state intervention
        
        credit rationing
      - Stiglitz & Akerlof
        
        imperfect competition
        
        efficiency wages (rigid)
  - - - expansionary policies -> boom-and-bust
        
        restrictive/neutral monetary policies
        
        rising prices -> uncompleted investments
        
        business cycle has monetary origins, but the latter have no long-term, real effects
      - inter-temporal relative prices
        
        price at investment time
        
        price at production time
      - from Böhm-Bawerk
        
        indirect processes of production
        
        more output, higher financial burdens
        
        i < r -> expansionary phase
        
        back to direct processes of production
        
        unemployment
        
        uncompleted investments
    - - integrating business cycles + monetary fluctuations + neoclassical general equilibrium
- - - - money supply has only short-term effects
    - - nominal = real + inflation rate
      - real = present vs. future consumption
        
        independent from market fluctuations
  - - - microtheoretical reinterpretation of both Keynesian and QMT
        
        money demand is stable
        
        money demand explains price formation
      - natural unemployment
        
        depends on individual preferences
        
        emerges in the long term
        
        long-term money neutrality
        
        trade-off inflation vs. unemployment
        
        market takes care of full employment
      - intervention
        
        monetary policies are better than fiscal
        
        goal: low inflation
  - - - all behaviour is rational
        
        unemployment is voluntary (consumption/leisure optimisation)
        
        no to Phillip curves: unemployment results from rational GE
        
        production results from rational expectations
        
        money is neutral (also short-term)
        
        everything is priced in by rational expectations
      - full price flexibility + continuous market clearing
    - - price change as preference change and technology breakthroughs (= Walras)
      - Kydland & Prescott
      - money is neutral
        
        against intervention
  - - - output (gaps), inflation and interest are jointly determined
      - IS-LM model + aggregate supply (AS) + Taylor rule
      - actual interest rate vs ‘natural rate’
- - - - micro: maximisation of individual utility
      - macro: money quantity (MV=PY)