RDP 1978-01: Two Essays in Monetary Economics 1. Introduction

In recent years there has been an explosion of analysis in monetary economics, especially concerned with the open economy case. Much of this work has used highly simplified models which serve to illustrate one or two key points. Most of the applied work based on these underpinnings is also simple, and in both theory and empirical analysis, the treatment of economic dynamics is often rudimentary. Some recent work has paid explicit attention to the empirical analysis of dynamic processes, and it is the latter which is the focus of the current essay.

The essay is organised as follows. In section 2 some views about the transmission mechanism which accord a key role to asset disequilibrium are discussed, together with some implications of these views. In section 3 the output effects of disequilibria caused by monetary and other policy are considered, and sections 4 and 5 discuss respectively the somewhat more controversial effects on prices and the balance of payments. Section 6 sums up.