Optimal fiduciary monetary systems

Hall, Robert E.

doi:10.1016/0304-3932(83)90047-8

Cited by 58 publications

(28 citation statements)

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“…The discussions in Hall 1983, Stockman 1983, King 1983, Fama 1983, Sargent and Wallace 1984, Sargent 1987and Weil 1991 of outside money, private money and the payment of interest on money ask some of the same questions as this paper, but do not offer the same answer, because they don't address the irredeemability of fiat base money. Sims (2001Sims ( , 2004, Buiter (2003aBuiter ( , 2003b, and Eggertsson and Woodford (2003, 2006, Krugman 2012 andMehrotra 2014 all stress that to boost demand in a liquidity trap, base money increases should not be, or expected to be, reversed.…”

Section: 5mentioning

confidence: 88%

The Simple Analytics of Helicopter Money: Why It Works — Always

Buiter

2014

Economics

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The paper offers a rigorous analysis of Milton Friedman's parable of the 'helicopter' drop of money -a temporary fiscal stimulus funded through an increase in the stock of fiat base money that is never completely reversed in present discounted value (PDV) terms. A monetized fiscal stimulus is more expansionary than a debt-financed one because a monetized expansion of the Central Bank balance sheet is profitable: it relaxes the intertemporal budget constraint of the State -it creates fiscal space. It is up to the fiscal authority to make appropriate use of this fiscal space. Four conditions must be satisfied for a helicopter money drop to boost aggregate demand. First, it must not be reversed fully in PDV terms. Second, there must be benefits from holding fiat base money other than its pecuniary rate of return: that is, the interest rate on any additional base money issued is below the rate of return on the Central Bank's assets. Third, fiat base money is irredeemable -an asset to the holder but not a liability to the issuer. Fourth, the price of money is positive. Given these conditions, there always exists -even in a permanent liquidity trap -a combination of monetary and fiscal policy actions that boosts private and/or public demand demand) -in principle without limit. Deflation, 'lowflation' and secular stagnation are therefore policy choices. Other conclusions are: (1) the increase in the monetary base need not be permanent for helicopter money to be effective; (2) Treasury debt cancellation by the Central Bank or the purchase by the Central Bank of perpetuities (with zero, negative or positive coupons) rather than finite maturity debt are fundamentally irrelevant policy actions. At most they have signaling value; (3) dropping perishable helicopter money will make it more effective if households are liquidity-constrained. JEL E2 E4 E5 E6 H6

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Section: 5mentioning

confidence: 88%

The Simple Analytics of Helicopter Money: Why It Works — Always

Buiter

2014

Economics

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“…Arguably, paying negative interest rates is a better approach if, as many believe, inflation becomes more unstable as the general level of inflation rises. Robert Hall (1983) argues forcefully that the central role of monetary policy should be to provide a stable unit of account, and in principle the ability to pay negative interest rates facilitates its ability to achieve this in today's low inflation environment (Hall, 2002(Hall, , 2012.…”

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confidence: 99%

Costs and Benefits to Phasing out Paper Currency

Rogoff

2015

NBER Macroeconomics Annual

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This paper explores the costs and benefits to phasing out paper currency, beginning with large-denomination notes, later extending to all but small coins and bills, and eventually those as well. It is hardly a simple issue; paper currency is deeply ingrained in the public's image of government and country, and any attempt to change long-standing monetary conventions raises a host of complex issues. The symbolic value of the euro, for example, as a flag for nascent European Institutions, is hard to overstate.Nevertheless, it is important to ask whether currency in paper form has outlived its usefulness. Credit and debit cards today are increasingly being used for even small transactions. And although today's crypto-currencies fall far short of being true currencies -for one thing their prices are simply too volatile -the underlying technologies may ultimately strengthen the menu of electronic payments options. 2

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“…Some earlier proposals to integrate private-sector markets into the setting of monetary policy include Hall (1983), Hetzel (1990), Sumner (1989), andDowd (1994). Several of these papers are susceptible to the same circularity problem described above.…”

Section: Introductionmentioning

confidence: 99%

Policy futures markets with multiple goals

Jackson

2010

Journal of Macroeconomics

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Previous work in monetary policy futures markets under a single policy goal have shown this approach to be effective at eliminating the circularity problem inherent with private-sector targeting strategies. We extend this monetary policy setting framework to a typical multiple goal policy objective: inflation and output stabilization. We also demonstrate how the prices in policy futures markets can help resolve debates over important policy questions.JEL Classification: E42, E44, E52, G13 Keywords: Policy futures market, forecast targeting, monetary targets, prediction markets, information markets. * I would like to thank Scott Sumner for immensely valuable feedback on earlier drafts. All errors or omissions are my own. Policy Futures Markets with Multiple GoalsAbstract Previous work in monetary policy futures markets under a single policy goal have shown this approach to be effective at eliminating the circularity problem inherent with private-sector targeting strategies. We extend this monetary policy setting framework to a typical multiple goal policy objective: inflation and output stabilization. We also demonstrate how the prices in policy futures markets can help resolve debates over important policy questions.JEL Classification: E42, E44, E52, G13

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Optimal fiduciary monetary systems

Cited by 58 publications

References 1 publication

The Simple Analytics of Helicopter Money: Why It Works — Always

The Simple Analytics of Helicopter Money: Why It Works — Always

Costs and Benefits to Phasing out Paper Currency

Policy futures markets with multiple goals

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