Many different models of money stock determination exist in the literature. An attempt is made here to understand why the differences in these models arise. Differences in models are ascribed first to the (usually implicit) role assigned to the price level. From this perspective, models fall into two categories. Models in the quantity theory tradition require that the price level adjust in order to cause the real quantity of money to equal the real quantity demanded. In contrast, in the real bills or banking school tradition, the nominal quantity of money adjusts in order to provide the real quantity demanded.
Our Research Focus: Inflation and Monetary Policy