Chapter 9
Monetary Theory
Monetary Theory is the theory
which is about the economic
influences of money.
货币对经济的作用是通过货币的供需关系及
运动来实现的。
v货币需求理论是研究货币持有者保持货币
的动机、货币需求量的决定因素和各种因素
的相对重要性以及货币需求对物价和产出等
实际变量的影响的理论。
v货币供给理论是研究货币供给量由哪些因
素决定的以及如何决定的理论。
9.1 The Classical Foundation
The amount of money in the economy should be “right”?
But , the problem is:
what is the “right” amount of money?
.
The origins of monetary theory lie in the classical
economics of Adam Smith and his friends. The two
cornerstones of the classical system are Say’s law
(萨伊定律) and the quantity theory. Say’s law deals
with interest rates, employment, and production.
The quantity theory explains the role of money.
9.1.1 Say’s law
Jean BaptisteSay (1767-1832) is a French economist.
“Supply creates its own demand.”
That means the economy could never suffer from
underemployment or succumb to Thomas’ fear of
under-consumption. Total spending (demand) would
always be sufficient to justify production at full
employment(supply).
9.1.2 Classical interest theory
The overall level of interest rates was
determined by the supply of and demand for
loanablefunds.
Classical economists recognize that saving
and investment are the two main factors, in the
long run, which underlie the supply of and
demand forloanablefunds.
According to classical economics, saving is a function of
the rate of interest. The higher the rate of interest, the
more money will be saved.
Investment is also a function of the rate of interest, it will
increases as the rate of interest declines.
qThe relationship between interest rate and
saving.
qThe relationship between interest rate and
investment.
What is equilibrium interest rate?
Interest rate
Equilibrium rate
Below
Equilibrium rate
Investmen Saving
Saving, investment
________________________
Classical interest theory
qMoney plays no role in this area of the classical system.
qIt influences neither employment, the rate of interest ,
nor production.
qReal things are determined by real forces.
qTotal goods and services produced and total employment
are determined by the supply of capital, labor force, and
existing technology.
qThe interest rate is determined by the thriftiness of the
public and the productivity of capital.
9.1.3 The quantity theory of money
v. According to the classicists, money is a veil that must
be pierced to examine the determinants of real economic
activity.
vMoney affects the price level, but nothing else. An
increase in the supply of money leads to an increase in the
prices of all goods and services, but everything else-most
notable the level of real economic activity, the rate of
interest, and people’s real income---remains unchanged
equation of exchange(交易方程式)
MV=PY (1)
It is not the quantity theory but simply an
identity.
M represents the supply of money
V is velocity or its rate of turnover
P is the price level
Y is the level of real income
On the right-hand side of equation(1)
vY represents total output of goods and services and
is usually referred to real GDP.
vP is an index of the current prices of all goods.
When Y is multiplied by P, we get the nominal level of
GDP, or GDP measured in current prices.
On the left-hand side of equation(1)
vM represents the stock of money (货币存量).
When M is multiplied by its velocity, the product
MV also equals total spending.
The equation of exchange shows that total
spending (MV) equals the value of what is bought(PY).
MV=PT (2)
In the equation of exchange, the Y was replaced
by T, the total level of transactions ,the total level of
transactions exceeds the level of GDP, because there are
many transactions that are not included in GDP.
Velocity figure on the left-hand side is called
transaction velocity.
Irving Fisher 欧文?费雪
The Purchasing Power of Money《货币的购买力》
MV = PT MV 或 P = MV/T
The Cambridge Approach
剑桥方程式
马歇尔(Alfred Marshall)
庇古(A′C′Pigou)
The Cash-balance Approach
现金余额数量说是从货币需求量
或货币保有量的角度来分析货币数量
的一种理论。
马歇尔1923年出版了《货币、信用与商业》一书，
系统地提出了现金余额数量说。他将人们的财产和收
入可有三种用途：
(1) 用于消费；
(2) 投资于实物；
(3) 持有货币，形成所谓的现金余额。现金余额
保有量是人们将储存货币所得到的利益与购买消费所
得到的享受及投资于生产得到的收益加以权衡比较的
结果。
货币需求量是人们进行资产选择的结果，而
非由购买商品支出需要所决定，这是现金余额
数量说与现金交易数量说在货币需求分析上的
重大差别。
The Cambridge economists view the equation of
exchange in a slightly different light. Instead of
concentrating on the rate of turnover of a given
stock of money during the year (its velocity), they
concentrated on the fraction of total expenditure
that people hold in the form of money.
庇古于1917年在英国的《经济学季刊》上发表
了“货币的价值”一文，他在马歇尔分析的基础上，
把现金余额数量理论用数学方程式予以解释，其公
式为：
kY
R = ——
M
（The Cambridge Approach）
k is the fraction of spending that people have
command over in the form of money balances(为货币
形态保持的财富与总财富之间的比率).
kY:为货币需求量(现金余额保有量)
因为币值(R)是一般物价水平(P)的倒数
1 kY
? = ?—
P M
即：
M=kPY (3)
Obviously k=1/V, so equations(1)and (3)are equivalent
from an algebraic standpoint.
In fact, equation (3) readily lends itself to interpretation as
a demand-for-money equation.（for some unknown
reason, when theCambridge economists divided both sides
of equation (1) by V they changed 1/V to letter k. ）
Now let’s convert the equation of exchange from an
algebraic identity into an analytical tool. In other words,
lets move from equation of exchange (identity) into the
quantity theory of money.
(a cause-and –effect hypothesis)
According to the quantity theory of money, a
change in the money supply produces a
proportionate change in the price level.
Some important assumptions:
（1）MV=PY, Y is assumed fixed at full employment.
（2）Velocity is assumed to be fixed by payment habit of
the community.
vIf MV=PY, and V and Y are assumed to be
fixed, then M doubles it follows that P must
double.
vSince real output is fixed, a doubling if total
spending must cause prices to double. End result
will be that money stock held by the public has
doubled, nominal GDP has doubled, the price
level has doubled, V is the same as before, and so
is real GDP.
9.1.4 money demand and the quantity theory
M=kPY
The fraction of nominal GDP that people want to hold in
the form of money, k, is determined by many forces. It is
essentially a transactions demand for money. Thus, since
money is used as a medium of exchange, the value of k is
influenced by the frequency of receipts and expenditures;
if you are paid weekly, you can manage with a smaller
daily average cash balance than if you are paid monthly.
The cash-balance version of the quantity theory, in
fact, emphasizes that people try to fix their real
money balance, not the dollar value of their cash
holding. Thus when the supply of money doubles, the
public has twice as many real balances as it wants,
given the old price level and real GDP.
People try to get rid of those excess real balances by
spending. But since the real output of goods and
services is fixed at full employment, only prices respond
to the increased demand for goods.
Prices will continue to rise until people stop trying to
spend those extra real balances. And that happens when
they have none left, that is, after prices have doubled so
that real balances are back to their original
level(M/P=2M/2P）is a famous theorem in Boolean
algebra.
9.1.5 Aggregate demand and supply:
A Summary
vA given stock of money buys more goods and
services with a lower price level. Hence，a lower
price level means that the amount of goods and
services demanded is greater.
vThe intersection of supply and demand in Figure
23.3 indicates the equilibrium price level. Since the
supply of goods is fixed by Say’s law, the demand
schedule tell us only what price level will clear the
market.
9.1.6 real versus nominal rates of interest
vReal and nominal yields are the same when the inflation
rate is zero。
vA given nominal rate of interest is the same as the real
yield（in terms of goods and services earned）when the
price level remains unchanged。
9.1.7 modern modifications: monetarists and new
classicists
代表人物是美国著名经济学家米尔顿.弗里德曼
(M.Friedman)。
1956年，弗里德曼发表了他的名作《货币数量学说—
—新解说》，它标志着现代货币数量论的诞生。
From the late 1940s through the 1990s, a group of
economists, associated in varying degrees with the
University of Chicago, built upon the traditions of
classical economics with the benefit of modern
theoretical and techniques.
Originally labeled the Chicago school, but currently
referred to either as monetarists or new classical
macroeconomists, this informal group has produced a
set of ideas with important implications for the role of
money in the economy.
Monetarists adhere to virtually all the tenets of
classical economics. However , they have made some
modifications. That’s why they are called new classical
macroeconomists.
E.g. some of them have used the quantity theory as a
framework for describing the relationship between M
and PY rather than just M and P.
This approach recognizes the fact that real output may
deviate temporarily from full employment and represents an
attempt at describing what influences over economic activity
rather than just the price level. It must be emphasized,
however, that this broader view of the quantity theory can
never wander very far from the pillar of classical economics:
Say’s law.
Modern monetarists still view the invisible hand as
pushing the economy toward the full employment level
of production (YFE). Any increases or decreases in Y
stemming from expansions or contractions in M are
viewed as temporary.
A second modification of classical thought occurred
with Milton Friedman’s revival of the quantity theory
during the 1950s.
He replaced the idea of the stability of velocity with the
less militant notion that it is predictable. Or, looked at
another way, money demand may not be a fixed
fraction of total spending, but it is related to PY in a
close and predictable way.
9.2 The Keynesian framework
J.M.Keynes published The General Theory of
Employment, Interest and Money in 1936.
Classical economics explained why fluctuating
prices and interest rates would continuously push
economic activities toward full employment. But
Keynes argued these free market forces could take
considerable time to work themselves out.
And in the short run, there could be lengthy
periods of underemployment. While it is difficult
to delineate the borderline between the short run
and long run，the six years of worldwide
depression preceding the publication of Keynes’s
magnum opus seemed too long to wait for
classical market forces to restore full employment.
9.2.1 Money and the rate of interest
One exposition of the Keynesian model so far is very
much like its classical counterpart in at least one respect:
Money does not matter. While the classics said economic
activity was set at the full employment level, and Keynes
said it would settle at the point where total desired
expenditure equaled production—which might be less
than full employment-up to this point neither model has
the money supply affecting real economic activity.
The classics, as we saw in the previous chapter,
deflected its impact to the price level. Keynes took a
bolder position: The rate of interest is a monetary
phenomenon.
It is not determined by saving and investment, the way
the classics said, but by the supply of and demand for
money.
Keynes also said that money might affect the level of
real economic activity, but only to the extent that it first
influenced the rate of interest. Changes in the rate of
interest would then alter desired investment spending and
thereby change the level of GDP.
Money is a financial assets. In other wards,
money is part of an individual’s wealth-part of
a person’s balance sheet.
portfolio
currency
bonds
Liquidity preference is a function
of the interest rate.
Interest rate
Equilibrium
Interest rate
Supply of money
Liquidity
preference
Money supply and demand
Keynesian interest theory
9.2.2Keynes and Keynes School’ s theory of money
supply
1. Keynes’s theory of money supply
货币供给是由中央银行控制的外生变量（exogenous
variable），中央银行能够按照自身的意图运用政策
工具对社会的货币量进行扩张和收缩，货币供给的变
化影响经济运行，但自身并不受经济因素的制约。因
此，又称政策性变量。
2. New Cambridge School’s theory of money
supply
从新剑桥学派认为，虽然从形式上看，现有的
货币供应量都是从中央银行这个渠道出去的，但实
质上货币供应量的多少并不完全由中央银行自主决
定，在很大程度上是中央银行被动地适应公众货币
需求的结果。
对现有货币供应量发生决定性的主要是货币需
求，而货币需求的大小又取决于经济盛衰以及人们
的预期。
3.新古典综合派对凯恩斯货币供给理论的
发展
新古典综合派提出了有别于凯恩斯货币供
给理论的“内生货币供应论”。认为，货币供给
量主要由银行和企业的行为所决定，而银行和
企业的行为又取决于经济体系内的许多变量，
中央银行不可能有效地选择银行和企业的支出
，更不可能支配他们的行动，因此货币供给量
主要内生的。
endogenous variables 内生变量/ 非政策性变量
Is money supply an endogenous variable or
an exogenous variable ?
Is money supply both an endogenous
variable and an exogenous variable ?
9.2.3 Keynesian liquidity trap (流动性陷阱)
When the interest rate is very low, people would expect
interest rates to rise to more “normal” levels in the future.
In other words, everyone would expect bond prices to fall,
therefore no one would want to hold bonds and the demand
for liquidity (money) would be infinite. Any increase in
money supply would simply be held by the public, and none
of the increased liquidity would spill over to the bond
market. No one, in fact, would willingly hold bonds.
In this liquidity trap, as Keynes called the flat portion
of the money-demand function, monetary policy does
not alter interest rates and therefore is completely
ineffective.
More flatter the liquidity-preference function, the less
effective monetary policy is in changing interest rates,
hence in influencing GDP.
It should be obvious that monetary policy will also be
less effective in changing GDP if investment spending
is not very responsive to changes in the rate of interest.
An interest-insensitive investment function means that
even a large change in the money supply will raise
GDP by less if investment spending does not respond
to interest rate.
Modern Keynesians have pointed out ,that investment
spending is not the only linkage between money supply
and GDP. Consumers may also change their spending in
response to variations in the interest rate. Consumer
wealth-the value of stocks and bonds-influences
consumption expenditure. A lower rate of interest means
that the prices of bonds rise. Thus consumers will spend
more when interest rates fall because they feel wealthier.
The wealth effect of a decrease in the interest rate causes
the consumption function to shift upward.
9.3 monetary policy and international trade
Net exports (exports minus imports ) adds to
aggregate demand.
investment demand
consumption demand
export
Although exports and imports comprise smaller
segments of the U.S. economy than in most other
countries of the world, modern Keynesians invoke the
potentially significant impact of monetary policy on
GDP through net exports.
How does that work?
The relationship between interest rate and
exchange rate.
When the central bank carries out loose monetary policy,
money supply will increase and interest rates will decrease.
U.S. investors buy foreign bonds because they earn more
abroad. This drives down the value of the dollar in the
foreign exchange market, making our exports more
attractive and discouraging imports. So when domestic
interest rates fall, net exports increase, driving up GDP.
When the central bank carries out loose monetary policy,
the reverse happens.
A change in money supply will have a larger effect on
GDP when interest rates change by a lot and when
investment, consumption, and net exports are very
sensitive to interest rates. These three components of
monetary policy are sometimes referred to as the
transmission mechanisms of monetary policy.
The greater the impact of money supply changes on
interest rate changes, and the larger the effect of monetary
policy on GDP.
The effect on investment spending is often called the
cost of capital effect because monetary influences
investment through the cost of raising capital to
business.
The effect on consumption is referred to as the
wealth effect because monetary operates through
interest rates on consumer wealth and how that affects
their spending.
The effect on net export is called the exchange rate
effect.
9.4 Some important concepts which are
related with demand for money and
supply of money
1. demand for money
effective demand “有效需求”
货币需求在经济学上的含义：人们
对货币作为一般等价物的需求。
2. The amount of demand for money
西方经济学关于货币需要量的一般定义是：
社会公众愿意以货币形式持有的那一部分实际货
币量。这里内涵了两层意思：
第一层意思是愿意持有的货币需要量。
第二层意思是实际的货币需要量。
3 .Moderate demand for money
一般认为，适度货币需要量就是与国民经济
正常发展相适应的货币必要量。
q适度货币需要量是一种客观存在的实证性的
量。
q适度货币需要量又是一种具有主观价值判断
的规范性的量。
q适度货币需要量所适应的经济发展水平实质
是商品、货币的供求平衡以及社会总供求平衡
。
4. 我国的经验数据法---“1:8 ”formula
货币流通量对社会商品零售额要保持1：8的比例
对商品库存要保持1：5的比例
对农副产品收购要保持1：4的比例。
“经验数据”的基本含义涉及对有关因素的规
定：(1)货币流通量指的是现金流通量；
(2)“经验数据”使用商品价格指的是当年价格；
(3)经验数据本身是正常年份数值。
5 . money supply and amount of money supply
货币供给是指中央银行和商业银行对现金货币、
存款货币等其它形式货币的供给。
货币供应量是指由中央银行和商业银行供给货币
所形成的、为社会公众持有的债务总量，它是反映
在银行资产负债表中的一定时点上的银行负债总额
或资产总额。
货币存量，即某一时点的货币供应量。
货币流量：是指按一定时期计量的货币周
转总额，货币所完成的交易量总和。
货币流量的大小等于货币供给量乘以流量
速度。
6. nominal money supply and real money supply
v 名义货币供给是指适应物价增减幅度在名义上增
减的货币供给，它是一定时点上的货币存量。
v实际货币供给是指剔除了物价变动影响在一定时
点上的货币存量。
7 .Moderate money supply
适度货币供给是指银行系统通过货币投放与信贷投放而实际
注入社会的货币量与社会合理的货币需求相一致。这个概念内
涵了三层意思：
一是适度的货币供给反映了适度的货币需求；
二是适度的货币供给在于使实际的货币供给量与适度的货币
需求量基本一致；
三是如何使货币供给适度在很大程度上取决于银行能否审时
度势，把货币需求调整在合理的限度内，从而使货币供给趋于
合理。
8. Monetary equilibrium
meaning of monetary equilibrium
symbols of monetary equilibrium
9.5 The process of money supply
9.5.1 the two “producers” of money: central
bank and commercial banks
9.5.2 The participators of money supply
central bank’s behaviors
commercial banks’ behaviors
finance institution’s behaviors
enterprises’ behavior
residents’ behaviors
9.5.3. 我国货币供给的决定因素
“企业——专业银行——中央银行”倒逼机制
“财政——专业银行——中央银行”倒逼机制
“外汇储备——中央银行”倒逼机制
