Towards a New Paradigm in Monetary Economics

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Cambridge University Press, Sep 4, 2003 - Business & Economics - 327 pages
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Towards a New Paradigm for Monetary Economics presents a pioneer treatment of critical topics in monetary economics. Unlike the prevailing monetary theory, this book focuses not on the role of money in facilitating transactions, but on the role of credit in facilitating economic activities more broadly. The 'new paradigm' emphasizes the demand and supply of loanable funds, which in turn requires the understanding of the imperfections of information and the role of banks. One enlightening view is that credit is quite different from other commodities in the sense that the former is based on information and default risk. The book consists of two parts. The first part develops a basic model of credit based on banks' portfolio choices. The second part is dedicated to the policy implications, among which are the liberalization of financial markets, the East Asian Crisis, the 1991 US recession and the subsequent recovery.

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The principles of the new paradigm
Reflections on the current state of monetary economics
How finance differs
The ideal banking system
Restricted banking or the banking system of today
Market equilibrium
From the corn economy to the monetary economy
Towards a general equilibrium theory of credit
Financial market liberalization
Restructuring the banking sector
Regional downturns and development and monetary policy
The East Asia crisis
The 1991 US recession and the recovery
The new paradigm and the new economy
Concluding remarks

Applications of the new paradigm
Monetary policy
Regulatory policy and the new paradigm

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About the author (2003)

Professor of Economics, Stanford University and Senior Research Fellow of Brookings Institution. Formerly Senior Vice President and Chief Economist at World Bank.

Professor of Finance, Columbia Business School.