Has the Growth of Money Substitutes Hindered Monetary Policy?

Phillip Cagan · Anna Jacobson Schwartz

43 citations0/0 files storedJournal of money credit and banking

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

In the decade following World War II the efficacy of monetary policy as a tool for stabilizing the economy was widely debated. Many reasons were offered for questioning the efficacy of monetary policy, but most of them derived from the judgment that the interest elasticity of demand for money balances was or had become quite high. This was the main theme of Warren Smith's influential article On the Effectiveness of Monetary Policy''l and of numerous other writings in the early post-World War II period before and after the TreasuryFederal Reserve Accord. The emphasis on interest elasticity was inspired by the theoretical notion of a trap, D. H. Robertson's [22] apt phrase for the Keynesian special case of an inElnitely elastic liquidity preference schedule, to which the monetary literature has obsessedly devoted so much attention.2 A liquidity trap is clearly damaging

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References

1973The Demand for Money Revisited 1936Rules versus Authorities in Monetary Policy 1963The Demand for Money: The Evidence from the Time Series 1970The Fundamental Determinants of the Interest Rates 1971Monetary Statistics of the United States 1972The Allocation of Transitory Income Among Consumers' Assets 1964Demand and Supply Functions for Money in the United States: Some Structural Estimates 1972Inflation and the Consumer

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