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The Quantity Theory Favorably Reconsidered: A Comment

Working Paper 219 | Published October 1, 1982

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Author

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Bruce D. Smith

The Quantity Theory Favorably Reconsidered: A Comment

Abstract

This paper comments on "The Real Bills Doctrine vs. the Quantity-Theory: a Reconsideration" by T. Sargent and N. Wallace. It argues that there exists a class of models similar to theirs that is (a) favorable to the quantity theory view of price stability, (b) supports the imposition of 100 percent reserve requirements, and (c) explains a long history of legal credit restrictions. In particular, lending restrictions stabilize price levels and result in Pareto improvements.