Hayek’s monetary theory and policy: A note on alleged inconsistency

Komrska, Martin; Hudík, Marek

doi:10.1007/s11138-015-0300-5

Cited by 5 publications

(2 citation statements)

References 12 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…White (1999) indicated inconsistency in the Hayek (1976) later works, in which Hayek permitted stabilization of an index of prices of commodities. Komrska and Hudík (2016) explained that this alleged inconsistency is illusive.…”

Section: Relative Prices In a Growing Economymentioning

confidence: 99%

Price Level Stabilization: Hayek contra Mainstream Economics

Potuzak¹

2018

Prague Economic Papers

View full text Add to dashboard Cite

The doctrine of beneficial effects of price level stabilization is an integral part of modern mainstream economics. In the 1920s and 1930s, Friedrich August von Hayek questioned this monetary policy regime, and stressed injection effects of the newly created money aimed at price level stabilization in the economy with expanding natural output. This paper compares the Hayekian theory with mainstream economics. A simple graphical apparatus is used to clarify major differences between the two theories. Standard textbook models are applied to show why the Hayekian approach favours secular deflation over price level stabilization which may lead to the boom-bust cycle. The next section presents New Keynesian arguments in favour of stable prices or even low inflation, and it shows why the Hayek recommendations may result in quasi-recession. The "Wicksellian" equation, which relates inflation gap to the real interest rate gap, is derived to reconcile the Hayek approach with the mainstream perspective. Finally, it is demonstrated that New Keynesian price rigidities might be of much lower importance when the decline in prices is caused by technological progress. A gradually falling price level is then identified as a natural response of the price system in the expanding economy.

show abstract

Section: Relative Prices In a Growing Economymentioning

confidence: 99%

Price Level Stabilization: Hayek contra Mainstream Economics

Potuzak¹

2018

Prague Economic Papers

View full text Add to dashboard Cite

show abstract

“…Wicksell (1936) argues that the market rate of interest is equal to its natural level in case of stabilized price level.Hayek (1935) objects that this holds only in the stationary economy. Further discussion on this issue may be found in Potužák (2018).5White (1999) points out thatHayek (1976) not criticizing price level stabilization is not consistent with his previous works Komrska and Hudík (2016). reject this alleged inconsistency.6 This holds regardless whether the central banks control interest rates or the money supply.…”

mentioning

confidence: 98%

Negative Inflation Targeting: A Proposal of a Non-Distortionary Monetary Policy

Frömmel

2019

QJAE

View full text Add to dashboard Cite

This paper aims to propose a non-distortionary monetary policy objective consistent with the Austrian business cycle theory. Since the price level should fall in the growing economy in the Hayekian framework, introduction of a negative inflation target combined with the Taylor rule is suggested as a non-distortionary monetary policy. To keep the money stream stable, the optimal inflation target would be equal to the opposite of the growth rate of the economy. Such policy should lead to the smoothing of the business cycle path since monetary policy could be less activist compared to the current state of the positive inflation target. Possible criticisms of this suggestion are anticipated and addressed in this paper.

show abstract

Push factors of endogenous institutional change

Hudík¹

2021

Journal of Economic Behavior & Organization

View full text Add to dashboard Cite

Hayek’s monetary theory and policy: A note on alleged inconsistency

Cited by 5 publications

References 12 publications

Price Level Stabilization: Hayek contra Mainstream Economics

Price Level Stabilization: Hayek contra Mainstream Economics

Negative Inflation Targeting: A Proposal of a Non-Distortionary Monetary Policy

Push factors of endogenous institutional change

Contact Info

Product

Resources

About