monetarism

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Related to Monetarists: Monetarist view, Keynesians

monetarism,

economic theory that monetary policy, or control of the money supply, is the primary if not sole determinant of a nation's economy. Monetarists believe that management of the money supply to produce credit ease or restraint is the chief factor influencing inflationinflation,
in economics, persistent and relatively large increase in the general price level of goods and services. Its opposite is deflation, a process of generally declining prices. The U.S.
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 or deflation, recession (see depressiondepression,
in economics, period of economic crisis in commerce, finance, and industry, characterized by falling prices, restriction of credit, low output and investment, numerous bankruptcies, and a high level of unemployment.
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) or growth; they dismiss fiscal policy (government spending and taxation) as ineffective in regulating economic performance. Milton FriedmanFriedman, Milton
, 1912–2006, American economist, b. New York City, Ph.D. Columbia, 1946. Friedman was influential in helping to revive the monetarist school of economic thought (see monetarism).
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 was the leading modern proponent for monetarism.

monetarism

a school of thought in economics and in politics that sees control of the money supply as the key to the management of the economy Monetarists emphasize the need to match the supply of money (including credit) to the capacity of the economy to produce goods and services, if INFLATION is to be controlled and stop-go economic growth avoided. As well as having been a fashionable but controversial theory in academic ECONOMICS (compare KEYNESIAN ECONOMICS), monetarism has also been widely employed in the 1980s by Western governments. It provides a rationale for control of the economy through control of the money supply, including the control of rates of interest, and has also been used as justification for control of state expenditures, and thus the state borrowing which creates credit. The adoption of monetarism was an outcome of the seeming failure of Keynesian economics to prevent high inflation and high unemployment, a loss of international competitiveness and a squeeze on profits. All of these were suggested to be the result of an OVERLOAD ON THE STATE and the escalation of state expenditures.

The issues to which monetarism relates are not only a matter of monetary relations and fiscal policy, or the interests of nation states. Rather, as suggested long ago by MARX, such issues also involve the complex competing interests of multiple groups and classes, internationally as well as within nations. See also HABERMAS, THATCHERISM.

monetarism

1. the theory that inflation is caused by an excess quantity of money in an economy
2. an economic policy based on this theory and on a belief in the efficiency of free market forces, that gives priority to achieving price stability by monetary control, balanced budgets, etc., and maintains that unemployment results from excessive real wage rates and cannot be controlled by Keynesian demand management
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References in periodicals archive ?
In contrast, the view held by (some) Market Monetarists treats NGDP as an object of choice--or rather, as something that ought to be treated as an object of choice, and one that ought to be acted upon to prevent the economy from deviating from its trend growth path.
Bellante and Garrison (1988) should therefore have seen that Friedman and the monetarists were wrong about the neutrality of money, especially
The Monetarists are good inflationary period economists.
Though many of the book's passages more than hint at an Austrian storyline, the authors rely explicitly on monetarist theory, which features the quantity theory of money (more accurately rendered as the "quantity-of-money theory of the price level").
The need still exists to discriminate between Keynesian and monetarist theories of international economics (For a discussion of the ideas separating Keynesians and monetarists, see Mayor, 1978, Chapter 1, pp.
Williamson and Wright argue that it is time for a New Monetarist framework to compete with the New Keynesians.
Central banks adopted monetarist thinking: Germany's Bundesbank was the first central bank in the world to publish a money supply target, for 1975.
As the George Mason University economist Peter Boettke explains, "A problem with the current monetarists is that while they learned from Friedman the idea that we should fight inflation, in practice they learned from his writings on the Great Depression that central banks should fear deflation.
For the record, Friedman was not a monetarist when our collaboration began.
One reason for the emphasis that monetarists place on the stylised fact that this long-run relationship between monetary growth and price inflation continues to hold, despite there having been many differing money supply regimes, is that it makes it much more difficult to believe that the error correction mechanism is solely, or overwhelmingly, from money holdings adjusting passively to pricing developments, rather than vice versa.
These studies show that while monetarists argument that monetary factors play dominant role in the long run inflation is valid [Khan and Schimmelpfennig (2006); Bilquees (1988)] in the short run other factor such as food prices also effect inflation [Khan and Schimmelpfennig (2006); Bilquees (1988); Khan and Qasim (1996)].