Doctoral Dissertations

Date of Award

12-1990

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Economics

Major Professor

Paul Davidson

Abstract

Coincident with the development of the Post Keynesian argument that money is not neutral has been an emphasis on the endogeneity of the money supply. The major implication of this reconceptualization of monetary theory is that monetary policy has real effects on output and employment in historical time. Descriptive statistics on economic growth in the Tennessee Valley indicate that employment in the region has suffered disproportionately from the restrictive intentions of monetary policy because of its dependence on the manufacturing sector. An econometric model was developed and applied to various aggregations of national and regional employment data to compare the adverse effects of monetary policy over the period between 1969 and 1987. The hypothesis motivating the study is that the disproportionate effect of monetary policy on the region is actually due to the disproportionate effect on rural areas within the Tennessee Valley, which constitute approximately fifty percent of the region's population. The results indicate that monetary policy has had a disproportionate effect on employment in the Tennessee Valley, and support the hypothesis that the effect on rural areas within the Valley explains this vulnerability. The central reason offered for this pronounced vulnerability to monetary policy is the region's growing dependence on manufacturing employment relative to the rest of the United States in the context of a relatively underdeveloped regional service sector. The results have profound implications for the capacity of monetary policy to regulate the national rate of inflation. The study suggests that the inability of the monetary authorities to deliberately localize the adverse of effects of policy in the context of structural change in the economy diminishes the success that can be expected, and that an alternative approach to the problem of inflation be developed which recognizes the critical relationship between nominal wages and productivity.

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