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Monetary Theory, Monetary Policy, and Financial Markets

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Frontiers in Economics

Abstract

Towards the mid-1970s, mainstream monetary macroeconomics was a well-established body of economic analysis. Work in this field was based on the analytical cornerstones of the IS-LM framework augmented by a supply side of sticky prices and wages and the Philipps Curve. Monetary economists used models encompassing hundreds of equations supposedly reflecting economic behavior to predict business cycle fluctuations and devise counter-cyclical policies aimed at fine-tuning the economy. Those who were critical of Keynesian activist policies emphasized the importance of asset markets and portfolio adjustment over short-run equilibria in the goods markets and pointed to the empirical stability of simple long-run relations such as the quantity equation. Nevertheless, they did not go substantially beyond the basic framework of modeling macroeconomic relations.

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  1. ZEI Bonn (Center for European Integration Studies), Germany

    Jürgen von Hagen & Bernd Hayo

  2. BIS (Bank for International Settlements), Switzerland

    Ingo Fender

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  1. Deutsches Institut für Wirtschaftsforschung (DIW Berlin), Königin-Luise-Straße 5, 14195, Berlin, Germany

    Klaus F. Zimmermann

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von Hagen, J., Hayo, B., Fender, I. (2002). Monetary Theory, Monetary Policy, and Financial Markets. In: Zimmermann, K.F. (eds) Frontiers in Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-24739-5_1

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