Princeton University Press
Monetary Economics and Policy
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Pierpaolo Benigno
About this book
A unified framework for understanding monetary policy, including recent unprecedented interventions by central banks
Over the past two decades, monetary policy has been deployed in unprecedented ways, as central banks attempted to mitigate the adverse consequences of the 2007–2008 financial crisis, the COVID-19 global lockdown, and recent inflationary surges. In Monetary Economics and Policy, Pierpaolo Benigno offers a new way to understand the potency and effectiveness of monetary policy, presenting a unified modeling framework to analyze policy challenges posed by both paper and digital currency systems. He investigates current theoretical and policy controversies, drawing connections with historical themes in monetary economics.
Benigno examines how central banks control the value of their currency amid competition from cryptocurrencies and private money-like securities; discusses the desirability of inflation targeting for macroeconomic stabilization; and explores theoretical grounds for the unconventional monetary policies seen in the recent period of zero nominal interest rates, including forward guidance, quantitative and credit easing, and helicopter money. He accompanies his analysis with an innovative visual representation of the New Keynesian model and inflation-targeting policies.
Benigno’s novel framework also allows the study of monetary policy normalization through quantitative tightening toward what has become the “new normal.” He discusses the optimal provision of liquidity and the different roles of the government and financial intermediaries. Finally, he recounts historical controversies regarding the inflation-unemployment trade-off to understand the 2020s inflationary surge and delves into the causes and dynamics of hyperinflations, tracing them to the subtle, ambiguous linkages between monetary and fiscal policy and weak balance-sheet conditions for the central bank.
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Topics
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Frontmatter
i -
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Dedication
v -
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Contents
vii -
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Preface
xv - Part I: Currency and Money
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Introduction
1 -
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1. The Value of Currency
7 -
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2. Cash as a Medium of Exchange
40 -
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3. Central Bank Digital Currency
76 -
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4. Private Money
92 - Part II: Stabilization Policies
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Introduction
113 -
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5. The Benchmark New Keynesian Model
118 -
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6. An AS-AD Graphical Analysis
137 -
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7. Inflation Targeting as an Optimal Policy
150 -
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8. NK Model with a Banking Sector
174 - Part III. Crisis Models
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Introduction
199 -
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9. Liquidity Trap
202 -
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10. Deleveraging and Credit Crunch
242 -
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11. Shortage of “Safe Assets”
266 - Part IV: Inflation
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Introduction
293 -
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12. The Inflation-Unemployment Trade-Off
299 -
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13. Hyperinflation
329 - Part V: Conclusion
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14. The Future of Monetary Policy
355 - Part VI: Appendix
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Appendix to Chapter 1
365 -
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Appendix to Chapter 2
367 -
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Appendix to Chapter 3
368 -
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Appendix to Chapter 5
369 -
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Appendix to Chapter 7
373 -
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Appendix to Chapter 8
379 -
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Bibliography
383 -
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Index
399
