Thesis advisor: Ryan Chahrour / Virtual Economies present an excellent opportunity to study Economic concepts and phenomena in a controllable environment where perfect data collection exists. This paper uses Macroeconomic data provided by CCP Games on EVE Online to explore how the Quantity Theory of Money holds in a world without finance. The study supports the Real Business Cycle's effects on prices. Furthermore, a quick look is taken on the effects that player imposed borders have on trade within the EVE universe. It appears that, even in a virtual world, borders tend to reduce patterns of trade among neighboring regions. These findings encourage the further use of virtual economies, particularly Massive Multiplayer Online Role Playing Games (MMORPGs), as petri dishes for the study of macroeconomic theories. / Thesis (BA) — Boston College, 2020. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Departmental Honors. / Discipline: Economics.

This thesis examines the work of Robert Eisner of Northwestern University concerning the appropriate measure of the federal government budget deficit. Eisner proposes specific adjustments to be incorporated into the calculation of the federal budget deficit in order to account for the effects of inflation. These adjustments effect the federal budget deficit via the effect of inflation on the level of federal debt outstanding and the interaction between this debt and the deficit. The focus of this study is a comparison of the Quantity theory and the Income-Expenditure theory of national income determination (in the tradition of Friedman and Meiselman, 1963) using Eisner’s adjusted measure of the deficit for the period 1955 - 1984. This comparison is made between adjusted and unadjusted deficits as measured by the National Income and Product Accounts and as measured by the Cyclically Adjusted (or High Employment) budget. / Master of Arts

The diploma thesis analyses the influence of money on the economic instability by the view of Post Keynesian economic theory. The paper answers the question, what creates the economic instability and if it's possible to eliminate or least reduce the instability. The money is here always seen as credit, which is made by institutions on the financial market. We need trust to create money. However the confidence is based on long-term expectations, which are not rational. The result of the analysis is that the trust growth in economy leads to growth of creation of money, whereby more money based on irrational, by psychology influenced expectations, is made. The economy becomes less stable, because there is more money in it, than people will have in the future to pay for its extinction. As the irrational expectation is an exogenous variable, which basically cannot be influenced, the economic instability is ineliminable and therefore allied to economy. We can only reduce instability by focusing on limiting factors in the creation of money, or on areas, where the irrational action can vent itself. Into consideration comes regulation of the financial institutions size, or regulation of international capital flow.

Depuis la stagflation observée consécutivement à la forte hausse du prix du pétrole en 1973 et 1979, les chocs pétroliers sont considérés comme l’une des sources de fluctuations potentiellement les plus importantes aux États-Unis comme dans de nombreux pays industrialisés. De nombreux articles ont étudié le rôle des chocs pétroliers dans la fluctuation des principales variables macroéconomiques à savoir, la croissance, le chômage, l’inflation et les salaires. Cependant, ces travaux n’ont pas encore permis d’aboutir à un consensus. Le débat s’est même intensifié au cours de cette dernière décennie, en raison d’une absence de réaction forte de l’économie réelle pendant la période d’augmentation du prix du pétrole entre 2002 et 2007. En effet, la récession qu’aurait dû engendrer une telle hausse des prix ne fut observée qu’au moment de la crise des subprimes en 2008. Plusieurs hypothèses furent avancées pour expliquer la différence entre les crises des années 1970 et 2000. Blanchard & Gali (2009) et Blanchard & Riggi (2013) évoquent, par exemple, la réduction de la quantité de pétrole utilisée dans la production, la plus grande flexibilité des salaires réels et une meilleure crédibilité de la politique monétaire. Hamilton (2009) et Kilian (2008) suggèrent quant à eux de l’expliquer par l’origine différente des deux chocs pétroliers : un choc d’offre pendant les années 70 et un choc de demande pendant les années 2000. L’objectif original de la thèse était de réexaminer l’impact des chocs pétroliers sur l’économie réelle par le canal de la dette. [...]Le développement de ces travaux entamés dans la thèse pourra aboutir à un cadre alternatif de modélisation décisif pour l’intelligence de la macroéconomie. Il devrait permettre une meilleure compréhension de l’évaluation des relations réciproques entre la sphère financière, la réalité des cycles macroéconomiques réels, l’énergie et le climat dans ce qui est sans aucun doute l’enjeu de notre génération : la transition écologique. / Ever since the stagflation that followed the oil price run-ups of 1973 and 1979, oil price shocks have been considered one of the most influential sources of economic fluctuation in the United States and other developed countries. A large body of literature has analyzed oil price shocks as sources of variation for leading macroeconomic variables such as GDP growth, unemployment rate, inflation, and wages. However, scholars have yet to reach a consensus as to the true impact of oil shocks on the macroeconomic environment. Furthermore, the last decade has seen the debate intensify as the results of the relatively (in comparison with the 1970s) muted reaction of the real economy during the 2002-6 oil price run-up. Indeed, the recessionary effect was only observed during the subprime mortgage crisis of 2008-9. Numerous hypotheses have been put forward to explain the difference in impact during the 1970s versus the 2000s. For instance, Blanchard & Gali (2009) and Blanchard & Riggi (2013) evoked the reduction of the quantity of oil used of a unit of production, more flexible real wages, and a better credibility of the monetary policy. Hamilton (2009) and Kilian (2008) pinpointed a difference in the nature of the shock: whereas the oil shocks of the 1970s were driven by supply, that of the 2000s was led by demand. The original aim of this thesis was to reevaluate the impact of the oil shock in the 2000s through the debt channel. First, based on the work of Banchard & Gali, we proposed a new dynamic stochastic general equilibrium model (DSGE), which includes oil as an input of production as well as a consumption good. By relaxing some of the hypotheses of Blanchard & Gali, especially the decoupling of the output elasticity of oil with the cost-share in the production, our work demonstrated that oil is still a fundamental variable of the GDP in the United States. Furthermore, we found that energy efficiency is a key factor that explains the muted macroeconomic impact of an increase in oil prices. A third line of inquiry that may explain the difference between the shocks of the 1970s and the 2000s considers the extra costs implied by a higher price of oil that were absorbed by private debt (which was itself exacerbated by low interest rates set by the Federal Reserve in the 2000s). However, we found that DSGE modeling is unable to replicate the macroeconomic environment that led to the subprime mortgage crisis. In light of these considerations, I reoriented my thesis along the lines of a new angle of research that seeks to represent economic mechanisms differently. Under this new frame-work, private debt is at the core of macroeconomic analysis. It provides an alternative view of the financial crisis that occurred in the 2000s.[...]The conclusions of this thesis demonstrate great potential for providing foundations for new perspectives in macroeconomic modeling. The papers included in the thesis allow, in particular, for a better understanding of situations that most macroeconomic models are not able to cope with, including the over indebtedness crisis. As a result, the framework introduced here may provide an alternative and improved perspective for public policy. Further development of the research presented in this thesis may lead to the improvement of other frameworks in the field of macroeconomics. This would allow for a better understanding of complex interactions between the financial sphere, real business cycles, energy, and climate in what is certainly the biggest challenge of our generation : the ecological shift.

The thesis discusses some issues on the topic of money velocity. Its goal is to summarise theroretical contributions in this area, which are followed by a practical application through the monetary analysis of the Slovak Republic from 1993 to 2000. The theoretical part involves the first approaches to money velocity, explanation of the quantity theory of money and monetarism and their critique. It also describes the monerary transmission mechanism. The practical application part evaluates the impact of the stability of money velocity on the decision of the National Bank of Slovakia to abandon monetary targeting. It also focuses on the other variables that influenced monetary policy execution. The last chapter is devoted to the importance of money velocity if the central bank uses inflation targeting as its policy.

Milton Friedman’s article on the optimum quantity of money has motivated much research since its publication. While most of the research has been on deterministic frameworks, a few models (e.g. Bewley 1983, Taub 1989) have extended the analysis to stochastic environments. The first two essays of the dissertation address the issue in two types of stochastic economies. In both the models, quadratic utility and linear constraints have been used to facilitate the use of Whiteman’s techniques (1985). The third essay introduces capital and derives the optimal rate of monetary policy in the presence of financial intermediaries. In the first essay a pure exchange model in which infinitely lived agents face stochastically varying endowments in each period is considered. In this model individuals can delay payment for purchases into the future with a credit card. It shows that the optimal rate of inflation is the same in a world where individuals are required to pay for their purchases immediately as in a world where they can delay payment with a credit card. Moreover, the optimal inflation rate may be positive or negative depending on the parameters of the model. Therefore, Bewley’s (1983) conjecture that deflation should proceed at a rate greater than the rate of time preference in a world of uncertainty is not generally true. The second essay derives the optimum quantity of money in a stochastic production economy. The optimum quantity of money literature largely ignores the effect of labor supply on money’s optimal rate of return. This paper examines the issue in an economy that is subject to stochastic shocks each period. It shows that incorporating production affects the optimal return on money in important ways. If there are individual specific shocks to preferences, then the optimal policy is highly inflationary. When individual preferences are subject to economy wide shocks, however, it is possible for either inflation or deflation to be optimal. The optimal policy depends on the weight individuals attach to the disutility of work and the weight individuals attach to the utility from holding money. Optimal policy responds positively to increases in the disutility from work and negatively to increases in the weight on consumption in the utility function. The paper therefore shows the sensitivity of the optimal policy on the way labor supply is modeled. Since such considerations do not arise in endowment economies, the optimal policy will generally change as one moves from endowment to production economies. In the third essay the Tobin effect and optimal monetary policy are analyzed when financial intermediaries develop endogenously. Providing a justification for the development of intermediaries similar to those found in the recent financial intermediation literature, we show that financial intermediation significantly affects investment decisions and monetary policy. In particular, the cost to intermediaries of providing substitutes of outside money play a critical role. Whether a decrease in the return on outside money will increase investment or not is found to depend on how the cost of providing alternative means of payment is affected. It is found that at low and moderate rates of inflation the Tobin effect remains valid. At high rates of inflation, however, the Tobin effect gets reversed. Further, since borrowers have private information regarding the outcome of the investment projects financed by the lenders, credit rationing may occur in equilibrium. We also derive the rate of return on money that maximizes social welfare. This optimal rate of return is not only dependent on the cost of the alternative means of payment, it also depends critically on whether credit is rationed in equilibrium or not. Finally, the paper highlights some of the distributional issues raised by a change in the rate of return on money. / Ph. D.

Uppsatsens titel: Penningmängd och huspriser - Finns det något samband? Ämne: Företagsekonomi, Kandidatuppsats, 15 hp Inlämningsdatum: 2009 – 05 – 29 Författare: Gunnar Levin, Viktor Sundling Handledare: Sven-Ola Carlsson Nyckelord: Penningmängd, Huspriser, Kointegration, M3, Fastigheter, FASTPI, Kvantitetsteorin Syfte: Syftet med uppsatsen är att genom statistiska tester beskriva sambandet mellan penningmängdens utveckling och småhusfastigheters prisutveckling. Vi vill även försöka förklara ett eventuellt samband med kvantitetsteorin. Tillvägagångssätt: I denna uppsats har vi genom att fastställa ett kointegrationssamband mellan tidsserievariabler kunnat genomföra en regressionsanalys mellan penningmängdsutvecklingen och prisutvecklingen för småhus avsedda för permanent boende. Slutsatser: Vi har funnit ett långsiktigt samband mellan utvecklingen i penningmängden uttryckt som M3 och prisutvecklingen för småhus avsedda för permanent boende. Sambandet mellan M3 och fastighetsprisindex för småhus kan förklaras med kvantitetsteorin. / Thesis title: Money supply and house prices - Is there any connection? Course: Business administration, Bachelor’s Essay, 15 credits Date of handing: 2009 – 05 – 29 Authors: Gunnar Levin, Viktor Sundling Advisor: Sven-Ola Carlsson Keywords: Money supply, House prices, Cointegration, M3, Real estate, FASTPI, Quantity Theory of Money Purpose of study: The purpose of this study is through statistical tests describe the relation between development in money supply and development in owner-occupied one- or two-dwelling buildings. We also want to describe a possible relation between the variables with the quantity theory. Method: In this essay, we have been able to perform a regression analysis between money supply and owner-occupied one- or two-dwelling buildings, by establishing cointegration between time variables. Conclusion: We have discovered a long term relation between the development in money supply defined as M3 and the development in prices for owner-occupied one- or two-dwelling buildings. The relation between M3 and real estate index can be explained with the quantity theory of money.

En 1965, Allais proposa une reformulation tout à fait originale de la théorie quantitative de la monnaie. Il s’agit de la théorie Héréditaire et Relativiste (HR) de la demande de monnaie. Apparue une décennie après la reformulation friedmanienne et la publication du modèle de Cagan (1956) relatif aux hyperinflations, cette théorie n’a pas réussi à se frayer une voie dans le champ de l’analyse monétaire. Plusieurs raisons ont concouru au non succès de cette théorie dont notamment son cadre conceptuel tout à fait étrange par rapport aux approches alors dominantes. L’objet de notre thèse est d’interroger l’apport de la théorie HR en tant que reformulation de la théorie quantitative et ce par rapport à la question de la stabilité de la demande de monnaie.Cette thèse est composée de trois parties. La première partie développe certains préludes nécessaires à l'analyse de la théorie HR (partie I). Les deux dernières parties contiennent les deux principaux résultats de notre travail. Le premier est que la théorie HR constitue une reformulation « ontologique » de la théorie quantitative, qui passe par la considération du temps psychologique-le temps tel que ressenti par l’ensemble des agents économiques (Partie II). Le second résultat est que la théorie HR, en tant que théorie macroéconomique, est grosse d’un changement paradigmatique qui fait écho à celui introduit en physique par la théorie de la relativité : pour certains phénomènes monétaires, la théorie HR substitue à l’explication par des relations causales entre agrégats une explication par la seule déformation psychologique du temps (Partie III). / In 1965, Allais proposed an original restatement of the quantity theory of money. It is the Hereditary and Relativistic (HR) theory of the money demand. Published a decade after Friedman’s restatement and Cagan’s model of hyperinflations, the HR theory remained unknown. Many reasons contributed to the lack of success of this theory, one of which is related to its conceptual framework which is incongruous with the standard approach. The HR theory is based upon the notion of time relativity from a psychological point of view, and the idea that the behavior of economic agents is conditioned by a hereditary effect of past events.Our thesis aims to investigate the contribution of the HR theory as a restatement of the quantity theory with regard to the question of the stability of money demand.The thesis is composed of three parts. The first part contains necessary preludes to the analysis of the HR theory (Part I). The second and the third part contain the two main results of the thesis. The first one is that the HR theory represents an ontological restatement of the quantity theory based on the notion of “psychological time”- time as experienced by the collectivity as a whole (Part II). The second result is that the HR theory, as a macroeconomic theory, contains a paradigmatic shift which echoes the one introduced in physics by the theory of relativity: in the HR theory, an explanation of some monetary phenomena using the psychological distortion of time is substituted to the explanation through causal relations between aggregates (Part III).

Ce travail de thèse est consacré à l’étude de la participation de James Laurence Laughlin (1850-19133) à l’unification monétaire et bancaire américaine de 1870 à 1913. L’histoire des débat monétaires et bancaires américains de la fin du dix-neuvième et du début du vingtième sièclen’accorde pas une place importante à cet auteur pourtant incontournable. Laughlin devient unéconomiste académique réputé en tant que premier Head Professor à l’université de Chicago et en fondant le Journal of Political Economy en 1892. Il s’affirme comme expert économique grâce à son expérience de money doctoring à Saint-Domingue en 1894 puis sa participation à la commission monétaire d’Indianapolis en 1897-98. Le rapport final de cette commission rédigé par Laughlin est utilisé pour l’écriture du Gold Standard Act voté en 1900 qui institue légalement un système d’étalon-or aux États-Unis. Par la suite, il prend part à la conception du Federal Reserve Act de 1913, aux côtés de son ancien étudiant Henry Parker Willis. La théorie monétaire de Laughlin se veut être une critique de la théorie quantitative de la monnaie et une défense de la mise en place d’un système d’étalon-or. Pour ce faire, il mobilise des éléments issus de la théorie des auteurs de la Banking School anglaise. Il explique alors la formation des prix par des déterminants non monétaires et inclut le crédit et la spéculation à sa théorie en distinguant un crédit « normal » et un crédit « anormal ». / This Ph.D. dissertation studies James Laurence Laughlin (1850-1913) participation in the American monetary and banking unification. The history of American monetary and banking debates of the end of the nineteenth and the beginning of the twentieth century does not place emphasis on this author while he is unavoidable. He becomes a renowned academic economist by being the first Head Professor of the University of Chicago and the founder of the Journal of Political Economy in 1892. He also acquires the status of economic expert by doing a money doctoring in Santo Domingo in 1894 and by participating in the Indianapolis Monetary Commission in 1897-98. The final report of this commission written by Laughlin had been used to write the Gold Standard Act, passed in 1900 and establishing a gold standard system in the United States. Subsequently, he gets involved in designing the Federal Reserve Act of 1913 alongside his former student Henry Parker Willis. Laughlin’s theory is meant to be a critique of the quantity theory of money. He includes elements from the English Banking School authors’ theory. He explains the formation of prices by non-monetary determinants and includes credit and speculation in his theory by distinguishing a “normal” credit and an “abnormal” credit.

The complexity of credit-money is conceived as the central issue in the banking-macro nexus, which the author considers as a structural as well as process component of the evolving economy. This nexus is significant for the stability as well as the fragility of the economic system, because it connects the monetary with the real domain of economic production and consumption. The evolution of credit rules shapes economic networks between households, firms, banks, governments and central banks in space and time. The properties and characteristics of this evolutionary process are discussed in three sections. First, the author looks into the origins of the theory of money and its role for contemporary monetary economics. Second, he briefly discusses current theoretical foundations of top-down as well as bottom-up approaches to the banking-macro nexus, such as dynamic stochastic general equilibrium and agent-based models. In the third part he suggests an evolutionary framework, building on a generic rule-based approach, to arrive at standards for bottom-up foundations in agent-based macroeconomic models with a banking sector. (author's abstract)