“…Monetarists contend that while insufficient growth can lead to deflation and a downturn in the economy, excessive increase in the money supply causes inflation. In order to keep prices, stable and encourage long-term economic growth, monetary theory places a strong emphasis on the need to manage the money supply (Cutsinger, 2022).…”
Section: Monetarism Theory and Its Applicationmentioning
In order to comprehend how monetary elements and Kenya's financial environment interact, this research investigates the application of monetarism theory to liquidity decisions for enterprises in Kenya. Milton Friedman's monetary theory places a strong emphasis on how the amount of money in circulation affects how the economy performs. Understanding the use of monetarism theory becomes essential in the Kenyan context, as the Central Bank of Kenya plays a key role in enacting monetary policy. The study assesses the effect of monetary policy instruments, including interest rate changes and open market operations, on liquidity decisions and looks at the relationship between changes in the money supply and firm-level liquidity positions. In the context of monetarism theory, it also looks at how macroeconomic variables like inflation rates, currency fluctuations, and economic growth affect firm-level liquidity decisions. This study attempts to add to the body of knowledge on the connection between monetary conditions and firm-level liquidity decisions by applying monetarism theory to the Kenyan setting. The results can help Kenyan policymakers make decisions that are supported by facts and that will promote financial stability, effective liquidity management, and long-term economic growth.
“…Monetarists contend that while insufficient growth can lead to deflation and a downturn in the economy, excessive increase in the money supply causes inflation. In order to keep prices, stable and encourage long-term economic growth, monetary theory places a strong emphasis on the need to manage the money supply (Cutsinger, 2022).…”
Section: Monetarism Theory and Its Applicationmentioning
In order to comprehend how monetary elements and Kenya's financial environment interact, this research investigates the application of monetarism theory to liquidity decisions for enterprises in Kenya. Milton Friedman's monetary theory places a strong emphasis on how the amount of money in circulation affects how the economy performs. Understanding the use of monetarism theory becomes essential in the Kenyan context, as the Central Bank of Kenya plays a key role in enacting monetary policy. The study assesses the effect of monetary policy instruments, including interest rate changes and open market operations, on liquidity decisions and looks at the relationship between changes in the money supply and firm-level liquidity positions. In the context of monetarism theory, it also looks at how macroeconomic variables like inflation rates, currency fluctuations, and economic growth affect firm-level liquidity decisions. This study attempts to add to the body of knowledge on the connection between monetary conditions and firm-level liquidity decisions by applying monetarism theory to the Kenyan setting. The results can help Kenyan policymakers make decisions that are supported by facts and that will promote financial stability, effective liquidity management, and long-term economic growth.
“…The Fed clearly has complete control over the supply of base money – full stop … This makes it possible to model the price level by simply looking at changes in the supply of base money, determined by the Fed, and changes in the demand for money determined by the public. (Sumner, 2021, p. 45)At face value, this passage says that movements in the monetary base by themselves determine inflation.…”
Section: Introduction: the New Debate On Moneymentioning
Crucial to the debates on monetarism is the money aggregate relevant to its key propositions, in particular those that relate to the determination of nominal national income and inflation. In his influential work on ‘market monetarism’, Scott Sumner has accorded a privileged position to the monetary base in the key monetarist propositions. This article argues that, on the contrary, in a modern economy the role of cash is so small, as well as so clandestine, that the monetary base does not play any direct role in the determination of national income and inflation.
“…The Fed clearly has complete control over the supply of base money – full stop … This makes it possible to model the price level by simply looking at changes in the supply of base money, determined by the Fed, and changes in the demand for money determined by the public. (Sumner, 2021, p. 45)And then he responds as follows: At face value, this passage says that movements in the monetary base by themselves determine inflation.. .. The purpose of the current article is to argue, on the contrary, that – in normal peacetime conditions – the monetary base does not directly, by itself, determine the path of inflation or nominal GDP, and it is a poor indicator of the thrust of monetary policy.…”
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confidence: 99%
“…The Fed clearly has complete control over the supply of base money – full stop … This makes it possible to model the price level by simply looking at changes in the supply of base money, determined by the Fed, and changes in the demand for money determined by the public. (Sumner, 2021, p. 45)…”
Macroeconomic debates often become enmeshed in confusion over terminology. For instance, does the US Federal Reserve target interest rates? Or does the Fed target inflation? Either claim is defensible, but the term 'target' is employed in very different ways in these two claims.In the June 2023 issue of Economic Affairs, Tim Congdon (2023) rejects some claims that I made about the monetary base. But I worry that we are talking past each other. Congdon views 'money' as above all a medium of exchange, an asset that facilitates transactions. For me, the essence of money is its role as a medium of accountthe asset in which all other goods and services are priced.In his introduction, Congdon quotes me as follows:One advantage of defining money [Sumner's italics] as the monetary base is that this definition makes it much easier to explain monetary theory. The Fed clearly has complete control over the supply of base moneyfull stop … This makes it possible to model the price level by simply looking at changes in the supply of base money, determined by the Fed, and changes in the demand for money determined by the public. (Sumner, 2021, p. 45) And then he responds as follows:At face value, this passage says that movements in the monetary base by themselves determine inflation.. .. The purpose of the current article is to argue, on the contrary, thatin normal peacetime conditionsthe monetary base does not directly, by itself, determine the path of inflation or nominal GDP, and it is a poor indicator of the thrust of monetary policy.
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