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The author presents a geometrical framework in which the inability of discretionary policy (consistent policy in the sense of Kydland and Prescott) to be socially optimal is demonstrated. Policy based on a rule results in a higher level of utility. The author extends the model to demonstrate that policy of a Rogoff conservative central banker results in approaching the same equilibrium as that from a monetary rule. Finally, the framework shows that attempts to exploit the Phillips curve result in stagflation. (Contains 3 figures, 1 table and 7 notes.)

The US Federal Reserve Board has often supported an inflation rate of between 4% and 5%. However, the liquidity trap that deflationary rates of 2% or less implies should not be regarded as a mainstay for inflationary policies.

The decline of the use of quantity theory paradigm to explain the Great Depression and the economic recovery ensuing is puzzling as there was no compelling reason for economists to abandon it and yet they did. The Keynesian model did not surface until after a decade later yet economists declined to continue the use of the available quantity theory to explain prevailing macroeconomic conditions at the time.

The monetary interpretation of the Great Depression is intimately associated with Friedman and Schwartz. Their analytical core consists of three elements: (a) the documentation of the sharp fall in the money stock; (b) the Federal Reserve's role therein and (c) the monetary mechanism whereby the Federal Reserve could have increased the money supply. This research investigates the monetary interpretation of the Great Depression by Irving Fisher and his two best Yale students, Harry Gunnison Brown, then at Missouri, and James Harvey Rogers, recently returned to Yale from Missouri. Their writings are examined in relations to F&S with the view to identifying whether they anticipated their analystical core. Though there are many parallels between the Yale writings of the thirties and F&S - including discussions of confusion in policymaking and of the importance of Benjamin Strong - I conclude that the Yale thesis was not that of Friedman and Schwartz. Interestingly, each of the three failed to consider one and each a different one of the three principal points of their core: Fisher, the role of the Federal Reserve in causing the decline in money; Brown, the behavior of the money stock; and Rogers, the money supply mechanism. (Reprinted by permission of the publisher.)

By William J. Barber. Cambridge, UK: Cambridge University Press, 1996. Pp. ix, 178. $44.95. This most interesting, enjoyable book continues William Barber's exploration into the role of economists as they [...]

The article focuses on growth industries in monetary economics, such as the influence of price expectations on real money. Fisher and Gibson's contributions are evaluated and their research indicates that their partial-equilibrium analyses results in opposed conclusions. The next section offers an equilibrium approach in which the real rate stays unchanged or drops when inflation is expected. This model is combined with the general-equilibrium model. Also provided are the conditions under which expectations of inflation result in the increase in the interest rates.

The subtitle to this delightful, interesting book tells the editors' approach: 'Conversations with the Founders of Keynesian Economics.' And that is what it is, a series of reminiscences of twelve [...]

This tightly argued, important book advances a proposal--'a social compact for the upswing'--whereby the standard of living in the former East Germany (GDR) can come to resemble more closely that [...]