5. Does the stock of money have any causal signiﬁcance? 1 INTRODUCTION In the ‘new consensus macroeconomics’ discussed in earlier chapters, it was evident that the stock of money is seen to operate as a mere residual in the economic process. Others have commented on the absence of the stock of money in many current debates over monetary policy. For example, Laidler (1999) states that ‘the Quarterly Projection Model which nowadays provides the analytic background against which Bank [of Canada] policies are designed, includes no variable to represent this crucial aggregate [stock of money]’ (p. 1). King (2002) makes the case in even stronger language; he argues that, ‘as price stability has become recognised as the central objective of central banks, the attention actually paid to money stock by central banks has declined’. Surprisingly perhaps, ‘as central banks became more and more focused on achieving price stability, less and less attention was paid to movements in money. Indeed, the decline of interest in money appeared to go hand in hand with success in maintaining low and stable inﬂation’ (p. 162). This has prompted a number of contributions that, wittingly or perhaps unwittingly, have attempted to ‘reinstate’ a more substantial role for money. In this chapter we argue that these attempts to ‘reinstate’ money in current macroeconomic thinking entails two important implications. The ﬁrst is that they contradict an important theoretical property of the ‘new consensus’ macroeconomic model, namely that of dichotomy between the monetary and the real...
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