Reply To: Increasing credit with GDP

[jmherbener]

Monetary disequilibrium theorists argue that price deflation caused by increases in the supply of goods made possible by greater productivity is benign to the working of the market. But price deflation caused by an increase in the demand for money is not benign. The reason is prices are sticky downward in such a case. They think that monetary policy should keep the rate of increase in nominal GDP constant.

Take a look at the article by George Selgin:

http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/1990/5/cj10n1-14.pdf

This view has been criticized by Austrian economists:

http://mises.org/journals/qjae/pdf/qjae15_2_3.pdf

http://mises.org/journals/qjae/pdf/qjae15_3_3.pdf