Monetary-disequilibrium theory
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Monetary-disequilibrium theory presents an alternative to the real business cycle model and the quantity theory of money considered as only a long-run theory of the price level. While it is widely agreed in economics that monetary policy can influence on real activity in the economy , real-business-cycle theory ignores these effects. Monetary-disequilibrium theory addresses the effects of monetary policy on real sectors of the economy, that is, on the quantity and composition of output.
Monetary-disequilibrium theory states that output, not (or not only) prices and wages, fluctuate with a change in the money supply. To that degree, prices are represented as "sticky." It is this “monetary disequilibrium,” that, the theory contends, affects the economy in real terms. Thus, changes in the money supply will result first in a change of output in the same direction, as idstinct from merely a change in prices. Consequently, an increase in the money supply will induce workers and businesses to supply more, without being fooled into doing so. In a situation where the money supply contracts, businesses will respond by laying off workers. In this way, the theory accounts for involuntary unemployment.
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- Timothy Cogley (2008). "inflation dynamics," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
- Herschel I. Grossman (1987).“monetary disequilibrium and market clearing” in The New Palgrave: A Dictionary of Economics, v. 3, pp. 504-06.
- Clark Warburton (1966). Depression, Inflation, and Monetary Policy; Selected Papers, 1945-1953 Johns Hopkins Press. Evaluation in Anna J. Schwartz, Money in Historical Perspective, 1987.
- Knut Wicksell (1898). Interest and Prices, tr. R.F. Kahn. Macmillan, 1936 . Chapter links, pp. v-vi.
- Holger C. Wolf (2008). "monetary overhang," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
- Leland B. Yeager (1997). The Fluttering Veil: Essays on Monetary Disequilibrium. Description, table of contents,, and review in Cato Journal, 1998, pp. 156-61 (PDF, pp. pp.10-15, press +).
