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Journal Article

The Real-Bills Doctrine versus the Quantity Theory: A Reconsideration

Thomas J. Sargent and Neil Wallace
Journal of Political Economy
Vol. 90, No. 6 (Dec., 1982), pp. 1212-1236
Stable URL: http://www.jstor.org/stable/1830945
Page Count: 25
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The Real-Bills Doctrine versus the Quantity Theory: A Reconsideration
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Abstract

Two competing monetary policy prescriptions are analyzed within the context of overlapping generations models. The real-bills prescription is for unfettered private intermediation or central bank operations designed to produce the effects of such intermediation. The quantity-theory prescription, in contrast, is for restrictions on private intermediation designed to separate "money" from credit. Although our models are consistent with quantity-theory predictions about money supply and price-level behavior under these two policy prescriptions, the models imply that the quantity-theory prescription is not Pareto optimal and the real-bills prescription is.

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