1、1OutlinepThe classical theory of inflationncausesneffectsnsocial costspClassical:assumes prices are flexible and markets clear pApplies to the long run 2The connection between money and pricespInflation rate=the percentage increase in the average level of prices.pPrice=amount of money required to bu
2、y a good.Prices are defined in terms of money.pValue of money=1/price3Definition of MoneyBarter economy(以物易物以物易物):to require Double Coincidence of Wants(慾望的雙重巧合慾望的雙重巧合)4Three Functions of Money1.Store of Value 價值儲存價值儲存a transfers purchasing power from the present to the future eg,money,bond,stock,ho
3、use2.Unit of Account 計價單位計價單位the common unit by which everyone measures prices and values3.Medium of Exchange 交易媒介交易媒介we use it to buy stuff eg,money,check5The Functions of MoneypLiquidity 流動性：流動性：the ease with which an asset can be converted into the economys medium of exchange.The most liquid asse
4、t is currency and check.Other asset is less liquid because it takes time to convert itself to a medium of exchange.6The Kinds of MoneypCommodity money 商品貨幣商品貨幣 takes the form of a commodity with intrinsic value.neg,gold,silver,cigarettes,wine.pFiat money 法幣法幣 is used as money because of government d
5、ecree.nIt does not have intrinsic value.neg,coins,currency,check deposits.7Money supply and monetary policy:definitionspMoney supply:the quantity of money available in the economy.pMonetary policy:the control over the money supply.8The Federal Reserve System:U.S.Central BankpMonetary policy is condu
6、cted by a countrys central bank.pIn the U.S.,the central bank is The Federal Reserve：美國聯邦儲備理事會serves as the nations central bank.nIt is designed to oversee the banking system.nIt regulates the quantity of money in the economy.nThe chairman：Ben Bernake 貝南克(2006/2-)n1987-2005：Alan Greenspan 格林斯潘 9Taiw
7、an:Central Bank(CB)n中央銀行總裁：彭淮南（1998年-）一、理事會：理事11至15人，主要職掌有關貨幣、信用及外匯政策事項之審議。中央銀行總裁、財政部部長、經濟部部長為當然理事；並應有實際經營農、工、商業及銀行業者至少各一人擔任理事。總裁並為理事會主席。除當然理事外，理事任期為五年，期滿得續派連任。二、監事會：監事會置監事5至7人，主要職掌資產、負債之檢查。行政院主計長為當然監事。監事任期為三年，期滿得續派連任。p參考：央行網站 http:/www.cbc.gov.tw/p認識中央銀行，金融變數說明，重要金融指標。10Money supply measuresnMoney
8、supply refers to the quantity of money available in the economy.Money=Currency+Demand deposit M=C+D -Money Supply(Ms)1.Currency(C)：通貨淨額：通貨淨額 paper bills and coins in the hands of the public.全體貨幣機構與郵政儲匯處以外各部門持有通貨 =央行通貨發行額全體貨幣機構郵政儲匯處庫存現金2.Demand deposits(D)：支票存款：支票存款 balances in bank accounts that dep
9、ositors can access on demand by writing a check.11Money Aggregate 貨幣總計數貨幣總計數 pM1A=通貨淨額+支票存款及活期存款pM1B=M1A活期儲蓄存款 =通貨淨額存款貨幣(存款貨幣=支票及活期存款+活期儲蓄存款)pM2=M1B準貨幣12Quasi-money 準貨幣pQuasi-Money 準貨幣：準貨幣：定期存款定期存款（一般定存、可轉讓定期存單）、定期儲蓄存款、外匯存款（外匯活期存款、外匯定期存款）、郵政儲金總數(劃撥儲金、存簿儲金、定期儲金)自1994年1月起尚包括附買回交易餘額、與外國人持有新台幣存款(含活期、定期)
10、；自2004年10月起包括貨幣市場共同基金。13Figure Money in Taiwan Economy（2007）Copyright2003 Southwestern/Thomson Learning億元 Currency($10,092)Demand deposits Travelers checks Other checkable deposits Everything in M1A($31,566)Savings deposits Small time deposits Money market mutual funds A few minor categoriesM1A+SD=M
11、1B ($82,200)0M1A$31,566M2$260,39414Taiwan data:money supply15Taiwan data:Real money supply16M=C+D:CBs 3 Tools of Monetary Control1.Open-market operations 公開市場操作公開市場操作(1)To increase the money supply,the CB buys government bonds from the public.收回債券、釋出貨幣(2)To decrease the money supply,the CB sells gov
12、ernment bonds to the public.釋出債券、收回貨幣2.Changing reserve requirement 改變法定準備率改變法定準備率(regulations on the minimum amount of reserves that banks must hold against deposits.)3.Changing the discount rate 改變重貼現率改變重貼現率(the interest rate the Fed charges banks for loans.)17U.S.inflation and its trend,1960-2006
13、slide 170%3%6%9%12%15%1960196519701975198019851990199520002005long-run trend%change in CPI from 12 months earlier18Theory of Money1.Quantity theory of money2.LR：Ch 4,M-P The Classical Theory of Inflation3.SR：Ch10,M-r(LM curve)Keynesian interest-rate determinationCh 4:1&2 relate M and P2&3:The moneta
14、ry equilibrium：Money supply+Money demand19Classical theory of Inflation:LR Monetary Equilibrium pMonetary Equilibrium 貨幣的均衡：Money supply+Money demandpMoney supply：a policy variable that is controlled by the CB.Money supply is fixed：vertical.20Money DemandpMoney demand has several determinants,includ
15、ing real income(Y),nominal interest rates(R),and the average level of prices(P)in the economy.Md:nominal money demand（L:liquidity）L=Md/P=real money demand.*(,)dMPL Y R21Money DemandL:liquidity(1)People hold money because it is the medium of exchange.As Y,L.(2)Money,as an asset,has lower return compa
16、red with bonds.As R,L.(3)As Y and R fixed(L fixed),Md depends on P.As P,Md proportionally.Md is positively sloped.*(,)dMPL Y R22LR Monetary EquilibriumpIn the long run,the overall level of prices adjusts to the level at which the demand for money equals the supply.pMs=Md(Md=P*L)as P=P*Or Ms/P=L as P
17、=P*pM/P=real money balances=the purchasing power of the money supply23Figure Money Supply,Money Demand,and the Equilibrium Price LevelCopyright 2004 South-Western Money demandQuantity of MoneyPQuantity fixedby the CBMoney supply04213Equilibriumprice levelA24Comparative Static 1:MsThe Effects of a Mo
18、netary InjectionpHelicopter Money 直昇機貨幣直昇機貨幣 （Money Rain）The CB increases money supply.Ms curve shifts to the right.Price level rises,with same proportion as Ms.eg,If the money supply doubles(Ms2=2Ms1)，and the price level doubles,(P*=24)25Fig The Effects of Money InjectionCopyright 2004 South-Wester
19、n MdQuantity of MoneyPriceMs1Ms04213AMs2MSB26The increase in Money supplyReasoning:An increase in Money supply,given the same outputAt the original price,there exists ESM:Too much money is chasing the same amounts of goods.The price level rises.When reaching new equilibrium,P with the same proportio
20、n as Ms.太多的貨幣追逐太少的貨物，造成物價上漲。物價上漲幅度與貨幣增加幅度相同。pMs P:LR phenomenon27The increase in Money supplyReasoning:(2)When the overall price level rises,the value of money falls.The value of money=1/Peg,P doubles,(P*=24)and the value of money becomes one half of the initial value.(1/21/4)To purchase the same am
21、ount of goods,the households have to hold more money:to double their money demand.(movement along Md curve)pInflation is an economy-wide phenomenon that concerns value of the economys medium of exchange.28Real and Nominal Interest RatespInterest represents a payment in the future for a transfer of m
22、oney in the past.pNominal interest rate（R，名目利率，名目利率）:the interest rate usually reported.nIt is the interest rate that a bank pays.pReal interest rate（r，實質利率，實質利率）:nominal interest rate corrected for the effects of inflation.29Real and Nominal Interest RatespYou lend out$100 for one year.P=$1/candypN
23、ominal interest rate was 10%.pDuring the year inflation was 6%.pPresent$100/$1=100 units of candiesp$100*(1+10%)/$1*(1+6%)=103.7 units of candiespReal return=3.7 units,real rate of return=3.7%pReal interest rate（real rate of return）近似=Nominal interest rate Inflation rate=10%-6%=4%(r=R-)30R,r,and exp
24、ectationpr=R-So r 0 if RR if 0p契約訂定名目利率 R=re+e (e:expected，預期的)e:expected inflation rate，re:ex ante real interest ratep實現的（realized）或實際的(actual)或ex post（事後的）（事後的）r=R-re+e-，So r re if e re if e 31The Fisher Effect(費雪方程式費雪方程式)pr=R-pR=re+e (e:expected)Fisher effect:(1)a one-to-one adjustment of the nom
25、inal interest rate to the inflation rate.ie,when rises,R rises by the same amount.(2)r stays the same.(Ch 3:S=I determines r)32Inflation and nominal interest rates in the U.S.,1955-2006percent per year-50510151955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005inflation ratenominal interest rate33
26、Inflation and nominal interest rates across countriesSwitzerlandGermanyBrazilRomaniaZimbabweBulgariaU.S.Israel34Taiwan data：R,and rInflation rate(CPI)Inflation rate(CPI)Nominal RNominal RReal rReal r1961-20071961-20074.35 4.35 5.03 5.03 0.68 0.68 1961-19701961-19702.92 2.92 4.58 4.58 1.66 1.66 1971-
27、19801971-198011.07 11.07 6.95 6.95-4.12-4.12 1981-19901981-19903.15 3.15 5.95 5.95 2.80 2.80 1991-20001991-20002.59 2.59 5.06 5.06 2.47 2.47 2001-20072001-20070.83 0.83 1.51 1.51 0.68 0.68 1974197447.50 47.50 8.50 8.50-39.00-39.00 1980198019.01 19.01 9.75 9.75-9.26-9.26 1981198116.32 16.32 10.25 10.
28、25-6.07-6.07 2001-20072001-2007(-)(-)零利率年代零利率年代35Taiwan:R and 36Taiwan:R and r37R and rpReal interest rate(r)is the relative price for intertemporal choice:consumption now or later(saving and investment)pNominal interest rate(R)is the relative price for money demand:the difference between the rates
29、return,nominal or real,for money holding or bond holding is R.38Nominal variables vs.Real variables pNominal variables 名目變數名目變數are variables measured in monetary units.eg,Nominal GDP=PY,Nominal wage W=Pw,Nominal interest rate R=r+.pReal variables 實質變數實質變數are variables measured in physical units.eg,R
30、eal GDP=Y,Real wage w=W/P,Real interest rate r.39A broader view of macro modelCh3 macro model:real side of the economy3 markets and 2 prices to assure general equilibrium:(1)LF market:S(r)=I(r)r*(2)Labor market:W/P=MPL (W/P)*,L*(3)Goods market:本期給定K,由r*=MPK 決定I與下期K Y(LR)is determined by the supply s
31、ide.Y=AF(K,L*)而r*C,S,I:即決定Yd成分40The Classical Dichotomy and Monetary NeutralitypCh4:4 markets and 3 pricesHere,add one more market(money market)and this market determine price(P)independently.Classical dichotomy 古典二分法：古典二分法：different forces influence real and nominal variables.pChanges in the money
32、supply only affect P(and)and only affect nominal variables(PY,W,R).But do not affect the real side of the economy(Y,r,(W/P),C,I,K,L).The irrelevance of monetary changes for real variables:monetary neutrality.(貨幣中立性貨幣中立性)41Comparative Static 2:epIn LR,people dont consistently over-or under-forecast i
33、nflation,so e=on average.pIn SR,e may change when people get new information.eg:CB announces it will increase M next year.People will expect next years P to be higher,so e rises.This affects P now,even though M hasnt changed yet.42How P responds to e(,)eML rYPpFor given values of r,Y,and M,mequilibr
34、iumarket money restore tomarket goods toflowsmoney ofSupply Excess)effectFisher(PLRe43The Quantity Theory of Money貨幣數量學說貨幣數量學說 Fisher(1911)pA simple theory linking the inflation rate to the growth rate of the money supply.M V=P YnWhere:P =the price levelY =the quantity of outputM=the quantity of mon
35、ey V =velocity of money44Velocity of moneyV=(P Y)/MpVelocity of money(貨幣流通速度貨幣流通速度)：defn:the number of times the average dollar bill changes hands in a given time period-the rate at which money circulates.LR：V is relatively stable over time.45Taiwan data:GDP,M and V 46Quantity equation:Inflation and
36、 money growth rateM V=P YpThe quantity equation shows that M must be reflected in one of 3 other variables:P or Y or V pLR V is relatively stable over time.LR Y is determined by the supply side.(If factors of production are fixed,Y is fixed.)1.P=MV/Y:M only induces P proportionally.The same result a
37、s the analysis of monetary equilibrium.2.Money does not affect output:Money is neutral.實質產出不受影響:貨幣中立性47International data on inflation and money growthSingaporeU.S.SwitzerlandArgentinaIndonesiaTurkeyBelarusEcuador48U.S.inflation and money growth,1960-2006slide 480%3%6%9%12%15%19601965197019751980198
38、51990199520002005M2 growth rateinflation rateOver the long run,the inflation and money growth rates move together,as the quantity theory predicts.49Taiwan data:Inflation rate and money growthTaiwanTaiwanInflation rate(CPI)Inflation rate(CPI)M1B growth rateM1B growth rateM2 growth rateM2 growth rate1
39、961-20071961-20073.97 3.97 17.04 17.04 17.56 17.56 1961-19701961-19702.92 2.92 18.69 18.69 20.78 20.78 1971-19801971-198011.07 11.07 28.03 28.03 26.06 26.06 1981-19901981-19903.15 3.15 18.12 18.12 20.84 20.84 1991-20001991-20002.59 2.59 8.99 8.99 11.88 11.88 2001-20072001-2007-0.49-0.49 9.17 9.17 4.
40、71 4.71 1974 1974=47.50%=47.50%1980 1980=19.01%=19.01%19811981=16.32%=16.32%2001-20032001-20030050Taiwan:Inflation rate and money growth51Quantity equation:Inflation and money growth rateMMPPYYIfYYMMPPVVLRYYPPVVMMPYMV,0 also)2(,0:)1(The primary cause of inflation is the growth in the quantity of mon
41、ey:the data is consistent with this implication.52Quantity equation:Inflation and money growth rateYYMMIfYYNormally sets CB then,0set tois goalgovt ,0)3(Monetarism貨幣學派(Friedman):Money serves as medium of exchange.And Monetary policy is made by rule.53Money demand and the quantity equationpIn the qua
42、ntity theory of money,the demand for real money balances depends only on real income Y.pA simple money demand function:M d/P=k Yk=how much money people wish to hold for each dollar of income.(k is exogenous)54Money demand and the quantity equationpmoney demand:M d/P =k Y pquantity equation:M V=P YpT
43、he connection:k=1/VWhen people hold lots of money relative to their incomes(k is high),money changes hands infrequently(V is low).55The Social Costs of InflationpCommon misperception:inflation reduces real wages and reduce purchasing power.pTrue only in the short run,when nominal wages are fixed by
44、contracts.pCh 3:In LR,real wage is determined by labor supply and the marginal product of labor,not the price level or inflation rate.56Average hourly earnings and the CPI,1964-2006$0$2$4$6$8$10$12$14$16$18$2019641970197619821988199420002006hourly wage050100150200250CPI (1982-84=100)CPI (right scale
45、)wage in current dollarswage in 2006 dollars57The Social Costs of InflationpThe classical view of inflation:A change in the price level is merely a change in the units of measurement.(1)If inflation raises nominal incomes proportionally,the real income stays the same.-neutrality(2)R=re+e，r=R-=re+(e)
46、If e=，r=retotoWWPP=58The Social Costs of InflationpInflation does not in itself reduce peoples real purchasing power.pCosts of expected Inflation:Shoeleather costsMenu costsRelative price distortions Unfair tax treatment and tax distortionConfusion and inconveniencepCosts of Unexpected Inflation:Arb
47、itrary Redistribution of Wealth591.Shoeleather Costs(鞋帶成本)pIn LR,inflation does not affect real income or real spending.pBut RLpSo,same monthly spending but lower average money holdings means more frequent trips to the bank to withdraw smaller amounts of cash.pShoeleather costs :It take s time and i
48、nconvenience for people to make the extra trips to the bank.take time away from productive activities.602.Menu Costs（菜單成本）pMenu costs:the costs of adjusting prices.pDuring inflationary times,it is necessary to update price lists and other posted prices.a resource-consuming process that takes away fr
49、om other productive activities.613.Relative-Price distortions pInflation distorts relative prices.pConsumer decisions are distorted,and markets are less able to allocate resources to their best use.Microeconomic inefficiencies due to misallocation of Resources624.Unfair tax treatment and Tax Distort
50、ionpInflation exaggerates the size of capital gains and increases the tax burden on this type of income.(1)The income tax treats the nominal interest earned on savings as income,even though part of the nominal interest rate merely compensates for inflation.(2)The after-tax real interest rate falls m
