Allan Meltzer passed away this week. He is probably best known for his multi-volume history of the Federal Reserve, the 'Meltzer Commission' that aimed to reform the IMF, and most recently his critique of Fed policy since the Great Recession. There was, however, much more to Allan Meltzer than just these developments. One of the most important contributions, in my view, was his work with Karl Brunner during the 'Monetarist Counterrevolution'. This counterrevolution took place in the 1960s and 1970s and pushed backed against the dominant view of the time that monetary policy did not matter. Milton Friedman and Anna J. Schwartz spearheaded this movement, but it was Meltzer and Brunner who did the most to show why money mattered. They worked hard to show the mechanism through which
David Beckworth considers the following as important:
This could be interesting, too:
Alex Tabarrok writes Defensive Gun Use and the Difficult Statistics of Rare Events
Tim Harford writes Books to make you feel better about the world
Brahma Chellaney writes How to Negotiate with North Korea
The adjustment of reserve positions to transitory change by buying and selling Federal funds (or by borrowing or repaying loans at the central bank) has negligible effects on the interest rates and asset prices relevant for household and business decisions. A perceived permanent change in the monetary base initiates very different responses and has different costs. The banks' balance sheet adjustments involve all portfolio items. The responses by the banks change the money stock, affect interest rates on a variety of assets and the prices of real assets. The public responds to changing relative costs and returns between loan liabilities and real assets. The adjustment to a perceived permanent change is reinforced by changes in price expectations or adjustment of the current expected return to capital whenever permanent increase in the base are sufficiently large or persistent.
Examples like this one is why Allan Meltzer's life work deserves to be remembered. He is a giant and will be missed. Rest in Peace Allan.