Lecture Ten: Monetary Theory in Innovated Open Economies

Abstract

The theory pivots on generalized portfolio analysis. And it entails quasi-banking: an agent prepared to be a quasi-banker warps his portfolio, for a fee, to accommodate others’ plans to revise their portfolios. In innovated open economies, shifts in asset preference lead to counter-switches in balance sheets of financial intermediaries. And the theory’s financial space is amorphous so that monetary disequilibrium is not different from disequilibrium in any asset market. Finally, the theory bars ‘monetary’ theories of balances of payments and exchange rate movements.