Rewriting the Macroeconomic Textbook: Is QTM Dead?
Open Access
- Author:
- Toomey, Evan
- Area of Honors:
- Economics
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Russell Paul Chuderewicz, Thesis Supervisor
Russell Paul Chuderewicz, Thesis Honors Advisor
James R. Tybout, Faculty Reader - Keywords:
- quantity theory of money
QTM
Textbooks
Macroeconomics
Monetary Policy
Economic Theory
Pearson
Mishkin
macroeconomics Curriculum - Abstract:
- In this thesis, I examine how changes in macroeconomics in the United States should affect university macroeconomics textbooks, primarily through the lens of the quantity theory of money (QTM). I first investigate the validity of QTM by evaluating the relationship between inflation and money growth in the United States from 1959 to 2019. To test this relationship, several different econometric methods are utilized including standard OLS, Vector Autoregression, Vector Error Correction, and the associated Impulse Response Functions. I then employ these results, which clearly show a breakdown in the relationship between money growth and inflation after 1982, to comment on the current state of university macroeconomic textbooks. Additionally, I examine other issues related to QTM, such as the evolution of the federal funds targeting regime, particularly in the aftermath of the great recession, to further compare to the curriculum that university textbooks teach. Out of the three current textbooks examined, all three were discovered to have woefully out of date models and sections that misinform and inadequately prepare students. The supply-side and demand-side of the textbook industry are briefly investigated to conjecture as to why university macroeconomics textbooks are lagging behind.