Money in the Great Recession
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Money in the Great Recession

Did a Crash in Money Growth Cause the Global Slump?

Edited by Tim Congdon

No issue is more fundamental in contemporary macroeconomics than the causes of the recent Great Recession. The standard view is that the banks were to blame because they took on too much risk, ‘went bust’ and had to be bailed out by governments. But very few banks actually had losses in excess of their capital. The counter-argument presented in this stimulating new book is that the Great Recession was in fact caused by a collapse in the rate of change of the quantity of money. The book’s argument echoes that on the causes of the Great Depression made by Friedman and Schwartz in their classic book A Monetary History of the United States.
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Chapter 8: Monetary policy, asset prices and financial institutions

Philip Booth

Abstract

Asset price movements before, during and after the Great Recession were extreme, and had an important role in motivating the fluctuations in expenditure. Economic theory has several theories of the determination of asset prices, including the controversial so-called ‘efficient markets hypothesis’. Some economists have argued that changes in the quantity of money have an important bearing on changes in the prices of assets in general. The chapter compares and contrasts the ideas put forward by these economists with other approaches, notably from the New Classical thinking and New Keynesianism, and from the Austrian School.

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