Alexander W. Salter

  • The drawback of a monetary constitution

    My previous posts have been fairly positive towards the idea of a monetary constitution: a binding rule on monetary policy makers that these policy makers cannot change.  A monetary constitution is particularly appealing for those who desire monetary affairs to be brought under the rule of law.  But there is one problem with monetary constitutions that…

    The drawback of a monetary constitution
  • The nature of central banking and the importance of a monetary constitution

    In my previous posts, I argued that it is imperative to secure a monetary policy regime that adheres to the rule of law.  In this post, I will extend the argument further: truly lawful money requires a monetary constitution of some kind. There is actually considerable sympathy to rules-based monetary policy contemporary macroeconomics.  However, not all monetary…

    The nature of central banking and the importance of a monetary constitution
  • Money and the rule of law, continued

    In my last post, I argued that monetary regimes should be judged not just on macroeconomic grounds, but also on whether they adhere to the rule of law.  In this post, I want to extend that argument: the rule of law should be the primary consideration for judging monetary regimes. Macroeconomic issues matter, but should be viewed as…

    Money and the rule of law, continued
  • Money and the rule of law

    When people think of monetary economics, they tend to do so in the context of macroeconomics. The questions that are most often addressed have to do with the effects of particular monetary institutions or policies towards output, employment, inflation and other macro variables of interest. There is nothing wrong with this. In fact, understanding the macroeconomic effects…

    Money and the rule of law
  • On interest rate targeting

    Previously I discussed inflation targeting as a popular rule for governing central bank behavior. In this post I will discuss interest rate targeting, another popular recommendation that has its own costs and benefits. The most prominent interest rate rule is the Taylor rule, devised by John Taylor of Stanford University. Taylor originally proposed the rule…

    On interest rate targeting
  • Inflation targeting as a monetary policy rule

    Among economists who agree that monetary policy should be conducted according to predictable rules, perhaps no proposed rule enjoys greater support than inflation targeting.  In brief, inflation targeting means the central bank conducts monetary policy such that it comes as close as possible to creating (or rather, setting the macroeconomic conditions for markets to create)…

    Inflation targeting as a monetary policy rule
  • What does monetary policy have to do with interest rates?

    Very little, really.  Despite what we teach our students in Principles classes, and in some more advanced classes on Macroeconomics and Money & Banking, the relationship between changes in the stance of monetary policy and changes in interest rates are ambiguous. The standard story, having its roots in the interest rate theories of old Keynesianism,…

    What does monetary policy have to do with interest rates?
  • Monetary equilibrium and monetary institutions

    I am very excited to join the Sound Money Project and contribute to the understanding of monetary systems that are conducive to economic stability.  To begin, I would like to describe how I think about monetary theory at a general level, and how this informs the study and analysis of monetary institutions. Money is incredibly…

    Monetary equilibrium and monetary institutions