The Dynamıc Adjustment Path of Price And Output

American Economic Review

May, 1975 

INTRODUCTION

The fundamental relation between the monetary and the real aectors has been the focus of an important controversy of contemporary economic theory.

However, there has not been general agreement among economists on the runction and influence ot money.

Although new theoretical explanations have been developed, the main controversy still persists and these theoretical approaches have created new dimensions to the heated debates on m~netary theory.

Especially arter the Second World war, as a result of extensive study on this subject, dynamic analysis have been applied and the study on the impact of the money stock on prices, interest rates and employment have become a very important field for economists.

The major change in monetarr theory lies in the shift from comparabive static analysis to explicit dynamie analysis.

Recent emphasis on the dynamic adjustment ot price and output to the changes in the money stock and ita growth rate can be regarded asa return to the themes of David Hume and Irving Fisher.

1 With the reformulation of quantity theory which is based on the aosumption that velocity is a stable behavioural relation, the adjustment of price and output to exogenous money stock changes and the dynamicsof the inflation have begun to be  studied in greater detail.

1s. Fisher. "Recent Development in Monetary Theory"

American Economic Review, May, 1975