Lecture by Vipin P Veetil

Friday, 24 March, 2023 | 03.30 – 05.00 P.M.

Saturday, 25 March 2023 | 11.30 A.M – 01.00 P.M. & 02.30 – 04.00 P.M.

Vipin P. Veetil is a faculty at the Indian Institute of Management Kozhikode (IIM Kozhikode). Prior to this, he was a faculty at Indian Institute of Technology, Madras (IIT Madras). Before joining IIT Madras, he was a Postdoctoral Fellow at University of Paris 1 Panethon Sorbonne. He did his Ph.D from George Mason University, USA. Dr. Veetil’s research interest spans across a wide range of issues in Macroeconomics, Monetary Economics, Production Networks, Agent based Computational Economics and Non-atonement Processes. He has published widely in reputed economic journals.

Abstract

Much of economic theory takes the behavior of prices in response to monetary shocks to be determined by the “Quantity Theory of Money” QTM equation. Empirical evidence accumulated over the last quarter of a millennia suggeststhat while the QTM relation holds in the long run, prices can behave very differently in the short run. More specifically, in the short run, some prices tend to fall in response to positive monetary shocks and rise in response to negative shocks. Furthermore, in the short run, the “price-level” itself tends to rise in response to negative monetary shocks. This wrong-directional change in the price-level was first identified by Thomas Tooke, later christened Gibson’s Paradox by Keynes, and finally called the “Price Puzzle” by Christopher Sims. Over the last seven years, Antoine Mandel and I have developed a network economy model which explains the observed behavior of prices in response to monetary shocks. Note that the price-level is not an auxiliary variable. More specifically, in workhorse monetary models, the price-level mediates the money-output relation and the money-employment relation (the Phillips curve). Naturally, therefore our discovery of a new mechanism to explain the observed relation between money and the price-level opened the doors for developing a new mechanism for explaining the ‘money-output relation’ and the ‘money-employment relation’. In the first lecture, I will discuss the Quantity Theory of Money and how its predictions contrast with the empirically observed behavior of prices. In the second lecture, I will outline our network-based model, and the mechanism ingrained in it,toexplain the wrong-directional behavior of prices in response to monetary shocks. In the third lecture, I will extend the model and the mechanisms involved to develop a new explanation of the money-output relation.