Classical Monetary Theories

1.

Classical Monetary Theories,
The Neo-Classical Monetary
Thought: the historical
background and the analysis
of the theories .e historical
background and the analysis of
the theories."

2.

Classical monetary theories
It is argued that the amount of money in circulation
directly affects the price level. According to this theory,
if the amount of money in the economy increases, then
inflation occurs, and if it decreases, deflation.

3.

One of the main representatives of
classical monetary theory was David
Ricardo, who argued that the money
supply should be fully provided with
gold or silver. Classical theories also
suggest that the economy can selfregulate through market mechanisms.

4.

The first stage of the policy of monetarism by Central Banks was the
inclusion of monetary aggregates in their econometric models. Already in
1966, the US Federal Reserve began to study the dynamics of monetary
aggregates. After the United States, Germany, France, Italy, Spain and the
United Kingdom announced benchmarks for money supply growth. In
1979, European countries came to an agreement on the creation of the
European Monetary System, under which they pledged to keep the
exchange rates of their national currencies within certain limits.

5.

Results
They point out that the central bank should take an active
role in regulating the monetary system and controlling the
inflation rate. It also emphasizes the need for transparency
and reliability of monetary policy to ensure the stability of
the financial system and economic growth.

6.

Neoclassical Monetary Thought
Developed in the late 19th and early
20th century within the framework of
the neoclassical school of economics.
Its founders are considered to be
Ayrys Fisher and Alfred Marshall.
Their theories recognize the
importance of the demand for money
and its impact on the real economy.
Ayris Fisher
Alfred Marshall

7.

These theories suggest that the level of monetary
income and prices depends on the general demand for
goods and services, and not only on the money supply.
They also emphasize that money is not always
effectively distributed in the economy and can cause
inefficiencies and imbalances.

8.

The new monetarism is based on several principles:
• money plays a crucial role: to understand the monetary phenomenon and monetary policy, it
is necessary to use models in which money is introduced in an explicit and non-primitive
form to solve the problems of market imperfections;
• financial intermediaries also play an important role: although financial obligations of banks
and cash serve as a medium of circulation, both categories are not identical;
• when modeling imperfections of markets that are overcome through money and financial
intermediaries, it is necessary to use such abstraction and interpretation that do not interfere
with obtaining plausible answers to the questions posed, preference is given to simple
models;
• no model can be universal for solving every economic problem, it is necessary to have a
class of models using similar assumptions and tools to solve a variety of problems.

9.

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