Contemporary Western Monetary Economy Theories
The study of monetary economics, otherwise known as macroeconomics, has been the subject of theoretical and empirical research for centuries. As the modern world has evolved and changed, so has the field of monetary economics. Contemporary Western Monetary EconomyTheories therefore reflect a combination of traditional and progressive thinking, incorporating ideas from classical, Neo classical and Keynesian frameworks. This article aims to outline the main principles of contemporary Western monetary economic theory, discussing the implications of the various theories on the world economy.
The traditional view of Monetary Economics has been dominated by the idea of a monetary system in which currency is supplied by government and exists as an external factor to economic activity. This concept was based on the idea of the money neutrality hypothesis, which states that the supply of money is neutral in its effect on prices, output, employment and economic growth. The traditional view of money generally assumed that the economic decisions are taken frequently and rationally by rational economic agents such as decision - makers. This emphasis has been particularly strong within the classical school of thought.
Keynesian and monetarist approaches to monetary economics focus on the impact of monetary policy on economic activity. The Keynesian approach, developed by John Maynard Keynes, pessimistically focused on the role of money in influencing aggregate demand, and hence prices and output. Classical economics and monetarism adopted their frameworks from the money neutrality hypothesis and suggested that the quantity of money, rather than its price, is the most suitable tool for regulation in an economy.
In recent decades, behavioral theories of economics have come to the fore in monetary economics. These theories are based upon the assumption that decision-makers are often irrational, and that economic decisions are taken under conditions of uncertainty. Behavioral theories focus upon the psychological biases of decision-makers and the implications of these biases on the economy. The implications of this approach to monetary economics have led to the emergence of asset pricing theories, which propose that investors are increasingly sensitive to changes in economic data and may react accordingly.
Another new field of contemporary monetary economics is the study of the relationship between monetary policy and economic growth. International economists have devoted considerable research to the question of why some countries have consistently outperformed their peers while others have lagged. Many economists believe that the answer lies in the implementation of appropriate macroeconomic policies.
In addition, the role of monetary policy in promoting economic stability has also been the focus of some studies. As the world has become increasingly interconnected and dependent upon one another for economic growth, the collective health of the global economy has become increasingly important. The debate over whether or not contractionary or expansionary monetary policy is the most appropriate for achieving long-term economic wellbeing is still ongoing, with proponents of both sides making compelling arguments.
Finally, the contemporary theories of money include the concept of the role of money within a broader view of the economy. This concept proposes that money should be viewed as part of a broader system, which consists of factors such as capital formation, productivity, infrastructure, and public services. These factors interact with one another to shape economic behavior and can be affected both positively and negatively by monetary policy.
Contemporary Western monetary economic theories reflect an attempt to synthesize traditional and modern views on the subject. While the classical view of monetary economies focused upon the effects of money supply on aggregate demand and output, modern economics has broadened its scope to take into consideration the broader aspects of monetary markets and economies. Asset pricing theories, financial instability theory, and the role of monetary policy on economic growth are all examples of contemporary monetary economics theories. It is important to analyze these theories in the context of the current global financial environment in order to make reliable policy decisions.
