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Driven by monetary policy; central bank sets interest rates consistent with a stable price level, sometimes setting a target inflation rate. [75] Driven by fiscal policy; government increases taxes on everyone to remove money from private sector. [5] A job guarantee also provides a NAIBER, which acts as an inflation control mechanism.
Groups typically classed as heterodox in current discourse include the Austrian, ecological, [note 1] Marxist-historical, post-autistic, and modern monetary approaches. [2] [3] [4] Four frames of analysis have been highlighted for their importance to heterodox thought: history, natural systems, uncertainty, and power. [5]
Goodhart's law is an adage often stated as, "When a measure becomes a target, it ceases to be a good measure". [1] It is named after British economist Charles Goodhart, who is credited with expressing the core idea of the adage in a 1975 article on monetary policy in the United Kingdom: [2]
In the US this approach to monetary policy was discontinued with the selection of Alan Greenspan as Fed Chairman. Central banks might choose to set a money supply growth target as a nominal anchor to keep prices stable in the long term. The quantity theory is a long run model, which links price levels to money supply and demand. Using this ...
Friedman asserted that actively trying to stabilize demand through monetary policy changes can have negative unintended consequences. [5]: 511–512 In part he based this view on the historical analysis of monetary policy, A Monetary History of the United States, 1867–1960, which he coauthored with Anna Schwartz in 1963. The book attributed ...
where α is a constant; Y is nominal domestic spending; M represents monetary policy defined by the monetary base; E represents variously high-employment expenditures, high-employment receipts, or high-employment surplus; and Z represents a catch-all variable defined as “a variable summarizing all other forces that influence total spending.”
This came to be the main policy recommendation of the monetarists. [23] Consequently, the monetarist application of the quantity-theory approach aimed at removing monetary policy as a source of macroeconomic instability by targeting a constant, low growth rate of the money supply. [24]
Modern Monetary Theory is a relatively recent offshoot independently pioneered by Warren Mosler that models the currency itself as a public monopoly as the micro foundation of macro economics, thereby augmenting the theory of effective demand, recognizing that coercive taxation drives the currency (the tax credit) and that the price level is ...