Working Papers

Misguided Monetarism: Tim Congdon’s Money and Asset Prices in Boom and Bust

My review of Tim Congdon’s (2005) Money and Asset Prices in Boom and Bust, London: Institute of Economic Affairs.

Tim Congdon is perhaps best know for his former role as head of Lombard Street Research and his membership of the IEA’s Shadow Monetary Policy Committee, which is loosely modelled on the monetarist Shadow Open Market Committee in the US.  Money and Asset Prices seeks to motivate a role for broad measures of the money supply in the determination of asset prices.  Congdon subscribes to the ‘active money’ paradigm, which is at odds with the mainstream academic view that money plays an essentially passive role in an economy because it is endogenous to the determination of official interest rates and money demand.  The ‘active’ money view is, however, probably closer to popular conceptions of how monetary policy works.  Popular commentary on monetary policy is often framed in terms of some vaguely defined notion of ‘liquidity,’ even though monetary aggregates play only an incidental role in the determination of official interest rates.

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posted on 24 October 2005 by skirchner in Economics

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