Continuous monetary contractions are partly unperceived and unadjusted for, perhaps because agents, lacking information, harbor static expectations and so expect the current money stock and price level to prevail in the future (Cesarano 1983, 198-99).
Let deflation occur: In his essay, "Of the Balance of Trade," Hume supposes that four-fifths of Britain's money stock is annihilated overnight with prices sinking immediately in proportion.
Money stock growth also slowed, as shown in Figure 17, though real money stock growth remained slightly above its long-run average, as shown in Figure 18.
Further, both nominal and real money stock growth remained above their long-run average rates during 1965 (year "0" in Figures 17 and 18).
The agreement was sparked by a sharp increase in the rate of inflation in 1950 and early 1951 and the desire of Fed officials to halt the rise by limiting the growth of bank reserves and the money stock
This instrument, which is often used in industrialized countries, steers directly the money stock
and, thus, influences demand for credit by the private sector.
The important effect of the growth of the money stock
is underscored in his assessment of the revival from the 1937-38 depression: "The principal force for recovery from the 1937-38 recession came from the decline in prices that raised the real value of the money stock
and, later from the rise in the nominal money stock
We examine the implications of choosing the nominal money stock
as the policy instrument.
Two measures of prices (CPI and WPI) and three measures of money stocks
(M0, M1, and M2) were taken for the period July 1981 to June 1998.
In addition, the growth of the money stock
was considered a good alternative to short-term rates as an intermediate target because it was published weekly and was thought to have a stable long-run relation to inflation.
However, of primary interest is the systematic difference in the money stocks
between the two economic systems.
The broad and narrow money stocks
are so highly correlated over time that it is impossible to distinguish separate effects.