The Role of Money in the Monetary Policy: A New Keynesian and New Monetarist Perspective

One of the most significant changes in monetary economics at beginning twenty-first century has been virtual disappearance what was once a dominant focus, role money policy, and parallelly, liquidity preference-money supply (LM) curve. Economists used to consider policy with help LM curve as part analytical framework which captures demand for money. However, workhorse model modern theory New Keynesian Dynamic Stochastic General Equilibrium (DSGE) framework, only comprises dynamic investment-savings (IS) curve, (NK) Phillips rule. The rule is generally known Taylor It relates nominal interest rate output-gaps inflation-gaps, but typically not either quantity or growth This change reflects how central banks make now. study provides detailed discussion on formulation context NK Monetarist perspectives. pros cons abandonment from models have discussed detail.