It Is Worse than That...
Rickstersherpa writes:
Yep. Chicago's John Cochrane: Still Certifiable...: Apparently Cochrane is imagining the world has gone back to a rigid Gold Standard where the quanity of money is fixed and only gold coin circulates...
It's worse than that: to get to his conclusion in a Fisherian framework you need not just (a) that the quantity of circulating money be interest-inelastic but also that the velocity of money be interest inelastic: that raising interest rates has no effect on one's demand for money.
As John Hicks said 73 years ago, that would be an extraordinary violation of value theory--if demand for liquidity were to be independent of its opportunity cost.
