The Elgar Companion to Social Economics
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The Elgar Companion to Social Economics

Edited by John B. Davis and Wilfred Dolfsma

As this comprehensive Companion demonstrates, social economics is a dynamic and growing field that emphasizes the key role that values play in the economy and in economic life. Social economics treats the economy and economics as being embedded in the larger web of social and ethical relationships. It also regards economics and ethics as essentially connected, and adds values such as justice, fairness, dignity, well-being, freedom and equality to the standard emphasis on efficiency. The Elgar Companion to Social Economics brings together the leading contributors in the field to elucidate a wide range of recent developments across different subject areas and topics. In so doing the contributors also map the likely trends and directions of future research. This Companion will undoubtedly become a leading reference source and guide to social economics for many years to come.
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Chapter 26: Monetary Policy

Sheila C. Dow


Sheila C. Dow Introduction The theory of monetary policy has gone through marked changes over the last 50 years, with the focus changing in turn from liquidity (in the Radcliffe approach) to the money supply and money targeting (in the monetarist approach) to the money supply and inflation targeting (the new classical approach) to the current emphasis on the interest rate within an inflation-targeting framework, relying heavily on the forward-looking expectations of market participants (the new Keynesian approach). This last approach has been dubbed the ‘new consensus’, reflecting a convergence of view among theorists and also a convergence between theorists and policy-makers. This view is also embedded in the institutional arrangements for monetary policy, whereby policy is made by a committee within an independent central bank. Yet there are still alternative viewpoints, notably the continuing emphasis by monetarists on monetary aggregates, and the Keynesian focus on the interdependence of real and financial variables. There is, further, some evidence of a weakening of the consensus, as doubts emerge as to the capacity of interest rate policy to control inflation. The theoretical analysis and much of the policy analysis are couched in macroeconomic terms, that is, in terms of variables which aggregate individual experience, and emphasize outcomes rather than processes. Macroeconomic analysis illuminates general relationships between data series, providing a clue to possible underlying relationships at the level of experience, at the same time as capturing something of the macroeconomic backdrop of individual experience. The latter is...

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