Monetarism, Bondism, and Inflation

Deskripsi

Presents a theoretical analysis of two distinct government deficit-financing policies—"monetarism" and "bondism"—and their implications for achieving a stable, non-inflationary economy. Using a dynamic IS-LM model that incorporates a Phillips curve and adaptive inflation expectations, Smith challenges the conventional monetarist prescription of maintaining a constant growth rate of the money supply. The paper concludes that the commitment to monetize deficits (bondism) can be anti-inflationary in the long run, echoing an earlier argument by Milton Friedman that a bond target provides automatic monetary stabilization.