Money stocks and flows

Because "stock-flow consistency" makes me think of money. [Here's Simon Wren-Lewis' and Jo Michell's good posts, but I've got a one-track mind.]

1. If you want to increase the stock of land in your portfolio, there's only one way to do it. You must increase the flow of land into your portfolio, by buying more land.

If you want to increase the stock of bonds in your portfolio, there's only one way to do it. You must increase the flow of bonds into your portfolio, by buying more bonds.

If you want to increase the stock of equities in your portfolio, there's only one way to do it. You must increase the flow of equities into your portfolio, by buying more equities.

But if you want to increase the stock of money in your portfolio, there are two ways to do it. You can increase the flow of money into your portfolio, by buying more money (selling more other things for money). Or you can decrease the flow of money out of your portfolio, by selling less money (buying less other things for money).

An individual who wants to increase his stock of money will still have a flow of money out of his portfolio. But he will plan to have a bigger flow in than flow out.

2. There is a market where land is exchanged for money; a market where bonds are exchanged for money; a market where equities are exchanged for money; and markets where all other goods and services are exchanged for money. "The money market" (singular) is an oxymoron. The money markets (plural) are all those markets. A monetary exchange economy is not an economy with one central Walrasian market where anything can be exchanged for anything else. Every market is a money market, in a monetary exchange economy.

An excess demand for land is observed in the land market. An excess demand for bonds is observed in the bond market. An excess demand for equities is observed in the equity market. An excess demand for money might be observed in any market. If some prices adjust quickly enough to clear their markets, but other prices are sticky so their markets don't always clear, we may observe an excess demand for money as an excess supply of goods in those sticky-price markets, but the prices in the flexible-price markets will still be affected by the excess demand for money.

Those two differences between money and all other assets means that it is misleading to think of the demand for money, like the demand for other assets, in terms of portfolio choice. Money is not just a medium of account, in which all other prices are measured. Money is the medium of exchange, which means it flows around the economy whenever anything else is traded.

"Desired saving" means that individuals want to have a positive net flow of assets into their portfolio so their stocks of assets increases over time. But it matters a lot whether individuals want to save in the form of money or want to save any other non-money asset.

If individuals want to save in the form of land, they won't collectively be able to if the stock of land does not increase. There will be an excess demand for land in the land market, if the price of land does not rise to dissuade that desire to save. There is nothing an individual can do if he wants to buy more land but nobody else wants to sell.

If individuals want to save in the form of money, they won't collectively be able to if the stock of money does not increase. There will be an excess demand for money in all the money markets, except those where the price of the non-money thing traded in that market is flexible and adjusts to clear that market. In the sticky-price markets there will be nothing an individual can do if he wants to buy more money but nobody else wants to sell more. But in those same sticky-price markets any individual can always sell less money, regardless of what any other individual wants to do. Nobody can stop you selling less money, if that's what you want to do.

Unable to increase the flow of money into their portfolios, each individual reduces the flow of money out of his portfolio. Demand falls in sticky-price markets, quantity traded is determined by the short side of the market (Q=min{Qd,Qs}), so trade falls, and some trades that would be mutually advantageous in a barter or Walsrasian economy even at those sticky prices don't get made, and there's a recession. Since money is used for trade, the demand for money depends on the volume of trade. When trade falls the flow of money falls too, and the stock demand for money falls, until the representative individual chooses a flow of money out of his portfolio equal to the flow in. He wants to increase the flow in, but cannot, since other individuals don't want to increase their flows out.

There's now a stock-flow consistency, of sorts. But it's a rather ugly one. We call it a recession.

Comments

[Robert Barbera]

I am confused. My favorite way of increasing the value of my bond holdings? Watching their prices rise.

Bob Barbera

[Nick Rowe]

Bob: and if the price of money rises (if there's deflation) you can watch the value of your money holdings rise in the same way. That's the same for all assets. But you can increase the quantity of money you hold by selling less, because money flows both into and out of our pockets as we trade everything else.

[Philip George]

1. "It is misleading to think of the demand for money."

That is correct. People complain that food is going waste although there is so much unfulfilled demand (people starving, etc). But of course when economists talk of demand for food they mean the willingness and capability to exchange food for money. Therefore, the demand for money would mean the willingness and capability to exchange money for money, which makes no sense for all.

Imagine a couple of decades wasted during the sixties and seventies when tomes were written about "the demand for money".

2. "If individuals want to save in the form of money, they won't collectively be able to if the stock of money does not increase."

Completely incorrect. In order to save more in the form of money all individuals need to do is cut consumption. This automatically means less money is used as a medium of exchange and more money is converted into asset.

Money in M1 deposits (barring, importantly, precautionary balances) is medium of exchange. Money in non-M1 M2 deposits is an asset. One can be transformed into the other.

My book "Macroeconomics Redefined" http://www.amazon.com/dp/B00ZX9O5XQ has more details.

This also means that the velocity of money has nothing to do with time. It is a ratio of two stocks, which is why the velocity of money is an exact function of interest rates. See http://www.philipji.com/item/2014-04-02/the-velocity-of-money-is-a-function-of-interest-rates

[C Trombley]

"Or you can decrease the flow of money out of your portfolio, by selling less money (buying less other things for money)."

Why can't you decrease the flow of equities out of your portfolio by selling less equities?

Two things bother me about most SFC people I see. One is that they don't usually confront the non-well-posedness of the inverse problem. That is, they don't talk about their own calibration problems. If we're to take the fluctuations of their models seriously, this can't be a good thing. The other is that they rarely check to see if their model has a long term steady state, which most of them do. In or near a stationary state, won't any good learning rule converge on rational expectations? That's not very Post-Keynesian of these Post-Keynesian models! Here's an example that gets it kind of wrong:

http://www.levyinstitute.org/pubs/wp_745.pdf

"In order to obtain a steady state, some or all parameters have to be assumed constant and stock flow ratios have to be constant"

This is backwards - those will be constant in the steady state, because everything will be constant in the steady state. But convergence to a steady state happens if the parameters converge and the stock-flow ratios converge, which is harder to avoid! We mathematicians have worked hard to extend the notion of convergence to an amazing number of things. More economically, when combined with non-well-posedness, this becomes dangerous. Example: "Are the stock-flow ratios fluctuating for real or because we aren't measuring them right?". I'm not sure what to make of that, maybe they're okay with a stationary state that depends on _____ or a model with multiple possible steady states. I think this paper has a good discussion of the difficulties:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2664125

If there's an amazing paper that solves all these problems, I'd be happy to see it and feel like an idiot.

[JKH]

Nick,

Good post on an important topic (clear thinking).

But:

Your point # 1 claims a false asymmetry. All 4 examples describe inventory management. An asset allocation function for investment in money, land, bonds, and equities routinely increases or decreases absolute amounts of each in a given portfolio, just in the way that you describe it for money. Money is not asymmetric in this context.

Your point # 2 includes a thrashing of one of your favorite pet peeves, I think – the “money market”. My suggestion is that you try to get past this, because its really not a pandemic problem. The “money market” is an institutional term of art that is really not used by a lot of people outside of those professionals who deal in it – although it is established terminology there. I suspect there are at least as egregious examples of ambiguous terms and taxonomy in academic economics. “Permanent income” comes immediately to mind for some reason. As it is, the “money market” terminology is inspired by a liquidity continuum quality - not by a bounded scope for use of money in exchange.

BTW, “stock-flow consistency” is nothing more than an appeal to coherent financial accounting. It is an incredibly simple idea in that sense.

(Mitchell's post is quite good)

[Jussi]

Philip:

"Money in non-M1 M2 deposits is an asset. One can be transformed into the other."

Interesting and good point. I wonder if this is only if bank issues other type of liabilities than demand deposits? In practice one can do the transformation (eg. to time deposits) but I think there is a demand/supply curve and thus a price for that.

Interesting link too.

[Nick Rowe]

CT: "Why can't you decrease the flow of equities out of your portfolio by selling less equities?"

If I want a higher stock of BMO shares, I would be buying BMO shares. If I want a lower stock I would be selling. I would never be buying and selling BMO shares at the same time.

There is one exception to this: a dealer who holds an inventory of shares (or used cars), who is both buying and selling. When it comes to money, we are all dealers.

"The other is that they rarely check to see if their model has a long term steady state, which most of them do."

I thought they did. I thought they were trying to figure out under what conditions their models would and would not have a steady state. But I could be wrong, because I am not familiar enough with their literature. I *think* that's what Jo Michell was saying to me on Twitter. But maybe I'm not understanding you.

JKH: thanks!
When finance people talk about "the money market", they know what they mean by that (the market for short term nominal IOUs), and it's harmless. But when macro/money people talk about "the money market" (and it's even in some macro textbooks!) it distorts their thinking.

[C Trombley]

Ah, I think I understand now. I think I was making the same mistake ("mistake"?) as JKH. There is no d(Equity)/dt holding money steady. Every market is a money market. If you only sell equities, then d(Equity)/dt = d(Equity)/dM dM/dt. If equity has a positive, constant money price, then a decline in the flow for an equity is exactly a decline in the flow of money (as you say), not a rise in the flow of equity.

Well, maybe I misunderstood the models I was looking at. I'm no expert at Post-Keynes. :)

[dlr]

Nick,

Imagine S&P 500 ETFs somehow became the MOE, but the "dollar" remained the MOA. All prices are posted in dollars, but everyone can check their phones to see the constantly moving (ETF/dollar price) and so can the payment software used by firms. Still, mental accounting and prices posted are always in dollars. People would immediately "know" whether $14 seemed fair for a movie ticket, but not necessarily the 2/7th share of an ETF they would actually exchange for it. Dollars still existed as zero maturity government debt (and some were held as portfolio assets), but had no special transactional convenience yield. There is still a stock-for-dollar market priced in dollars just as there is a stock-for-everything market priced in dollars.

Shock A. There is a sudden spike in demand for shares, let's say caused solely due to the part share values that represent their extra convenience yield as the MOE, that is not expected to be accommodated by increased supply for whatever reason. What happens?

Share prices increase in the stock-for-dollar market. People's increased demand for the MOE are sated as stock holdings-in-dollars and thus stock holdings-in-everything prices rise. Prices in decentralized markets like wages do not change and do not need to change. Firms still expect $100 in revenue and can pay workers $20 an hour, even though both revenue and wages are lower in MOE (ETF) terms. No recession.

Shock B. There is a sudden spike in demand for dollars, but of course no dollars-as-the-MOE since they are not the MOE. It is a standard flight to safety and there is a similar spike in the demand for AAA bonds. There is no change in demand for the MOE and in fact there is a decline in demand for stocks ETFs. What does this look and feel like? A standard recession. People want more dollars and safe bonds so they try to buy them (or not sell them for those who happen to own some). They succeed in flexible price markets like the dollar-stock and stock-bond-priced-in-dollars market. But buyers refuse to pay too-high dollar prices in sticky decentralized markets like the wage market. The dollar prices of everything inflexible are too high, even though Pareto optimal transactions are available if only the MOE could also be used as the MOA. This is true even though there are not "two ways" to increase dollar holdings any more than there would be two ways to increase land holdings. The world still looks like there is an excess supply of everything as all inflexible prices want to fall. It has nothing to do with the MOE or that you can increase MOE holdings in two ways and all other holdings on only one way.

I know, that's not our world. The MOA is the MOE. But I think it's still a valid argument against your view of the primacy of the MOE and the importance of irrelevant factors like the two-way nature of the MOE. You can have a recession that looks just like a standard recession if prices are too high, even if there is no two-way nature of the MOA. Moreover, the only way the MOE is important is if it is also the MOA or sticky in terms of the MOE. I bet an enterprising grad student could even do decent studies of this looking within some examples of semi-dollarized South and Latin American countries that actually experienced variability in what was used as the MOA and MOE.

[Mike Sproul]

There's a third way to increase your stock of money: Issue it yourself. For example,

1) I get an oil change, and write out a $40 IOU to my mechanic. He uses my IOU to pay his worker, who uses it to pay the grocer, who uses it to pay the farmer, who uses it to pay me for the land he rents from me.
2) A tenant in a house I own is short this month, so he gives me his $40 IOU. I pay that IOU to my mechanic, who pays it to his worker, etc.

[JP Koning]

Was in the midst of writing this when dlr posted something quite similar. Clicking the submit button anyways:

Nick, interesting post.

We can imagine an economy where money is special for most of the reasons you list, and prices are sticky, but when there is an excess demand for money we don't get a recession.

Say people don't set prices in terms of money proper (call it the peso), but some other medium of account. This could be an abstract one like Chile's UF or maybe an illiquid foreign currency like the dollar or a commodity like gold. Prices are sticky in terms of this abstract or foreign medium account. But the exchange rate between the local peso and the medium of account are perfectly flexible. People continue to pay for everything with pesos.

Say everyone wants to save in pesos. Unable to increase their flow of pesos into their portfolios, they reduce the flows out. Prices are sticky, but we don't get a recession. This is because the exchange rate between pesos and the medium of account bears the brunt of the burden of adjustment.

The only way to get a recession in this imaginary economy is to have some sort of shock to the market for the medium of account. If that is gold, for instance, riots in South Africa might cause a recession. But there is no such thing as a recession caused by the medium of exchange.

[Nick Rowe]

dlr: yes, it's not (usually) the real world, but thought-experiments like that can still tell us something.

I want to change your example slightly, because bonds have a flexible price in terms of dollars:

There is a fixed stock of paper currency that is used as MOE. There is a fixed stock of gold that is used as jewelry, and also used as MOA. The price of currency is flexible, but all other prices are sticky (in terms of gold). The price of currency is (proximately) determined in the gold market (where currency is traded for gold).

(I think that's simpler; definitely easier for me to get my head around!)

Shock A. Demand for currency doubles. Excess supply of gold/excess demand for currency in the gold/currency market. The price of currency doubles. No recession. We agree.

Shock B. Demand for gold jewelry doubles. Excess demand for gold/excess supply of currency in the gold/currency market. If *all* prices were perfectly flexible, then all prices would halve (I'm assuming unit elastic demand for gold jewelry, because it's a Veblen good for flaunting your wealth). But we're assuming only the price of currency is flexible, so it adjusts to clear the gold/currency market. The price of currency falls, but all other prices stay fixed. Which means there's excess demand for currency/excess supply of other goods in (probably) all the other markets. Which means a recession. We agree (I think).

Where we (might) differ is in the interpretation of this thought-experiment. I would say that the increased demand for the MOA good (gold) only causes a recession because it reduces the real value of the stock of MOE which causes an excess demand for MOE which causes a recession. It is the same result we get if currency is both MOE and MOA, but is a close substitute for gold (or bonds), so an increased demand for gold (or bonds) causes an increased demand for currency.

And the clearest way to see this is to ask what would happen if barter were cheap and easy, so there's only a MOA (gold) but no MOE. An increased demand for gold would mean an excess demand for gold in terms of all other goods (assuming all prices sticky), but all other trades could continue as normal because relative prices haven't changed, so MRS=MRT for all other combinations of goods.

I *think* that's right.

[Nick Rowe]

Mike: yep. But most of us can't do that (or we would be banks).

[Too Much Fed]

JKH, this is from:

http://www.bankofengland.co.uk/research/Documents/workingpapers/2015/wp529.pdf

of Michell's post.

It is:

"The fact that banks technically face no limits to increasing the stocks of loans and deposits instantaneously and discontinuously does not, of course, mean that they do not face other limits to doing so. But the most important limit, especially during the boom periods of financial cycles when all banks simultaneously decide to lend more, is their own assessment of the implications of new lending for their profitability and solvency, rather than external constraints such as loanable funds, or the availability of central bank reserves.

This finally takes us to the venerable deposit multiplier (DM) model of banking, which suggests that the availability of central bank high-powered money imposes another limit to rapid changes in the size of bank balance sheets. The DM model however does not recognise that modern central banks target interest rates, and are committed to supplying as many reserves (and cash) as banks demand at that rate. The quantity of reserves is therefore a consequence, not a cause, of lending and money creation."

Is that right?

[Nick Rowe]

TMF: Stop.

[dlr]

Where we (might) differ is in the interpretation of this thought-experiment. I would say that the increased demand for the MOA good (gold) only causes a recession because it reduces the real value of the stock of MOE which causes an excess demand for MOE which causes a recession. It is the same result we get if currency is both MOE and MOA, but is a close substitute for gold (or bonds), so an increased demand for gold (or bonds) causes an increased demand for currency.

I think the way you rewrote the example leaves it open to any interpretation, no different from conventional MOA=MOE case. I think you need another ingredient to tell whether your interpretation is useful. Let's say in your example after Shock B, the increased demand for currency is perfectly accommodated by the CB with increased supply, but the supply of Gold is unchanged. Isn't there still a recession? Aren't the gold prices of everything sticky, like the 20 ounces per year in median wages, still suddenly too high, and won't that look like a buyer's strike with excess supply everywhere even though the potential excess demand for the MOE never transpired?

[Nick Rowe]

dlr: yes, I think there would still be a recessions. Let Pm be the price of money in terms of gold, and P be the price of everything else in terms of gold. So the real stock of money is MPm/P. Start with Shock B, which causes Pm to halve and MPm/P to halve, which causes a recession. Then if the central bank increases nominal M, the only effect will be that Pm falls in proportion, so MPm/P is still too low, so there's still a recession.

[JKH]

"In the sticky-price markets there will be nothing an individual can do if he wants to buy more money but nobody else wants to sell more."

Maybe this is nit picking, or missing your point, or something, but I'm having trouble visualizing why an individual in a sticky-price market wouldn't unstick his asking price.

[dlr]

So the real stock of money is MPm/P. Start with Shock B, which causes Pm to halve and MPm/P to halve, which causes a recession.

Ha. Yes, I was afraid you would say that; this is exactly why I chose shares as the original MOE -- something we could more easily imagine have a lower quasi-equilibrium demand that was the consequence (and not cause) of an increased demand for the dollar MOA. This is an inherent problem with attributing proximate cause among two variables which will be similarly sticky relative to other real variables, and thus always have the possibility of being "too low" relative to their full employment real stocks (but again, not necessarily if a real shock that caused the increased demand for MOA also uniquely lowered the real stock of the MOE demanded at full employment). All examples will have some measure of this problem, but I think your choice of using domestic currency as the MOE has it the worst. I once tried to make this point by describing a world in which technology allowed every asset to be the MOE (i.e. there is no particular MOE), but without Barter with a B, because people still relied on a single MOA to make price decisions (you can trade two cows for a horse, but only if both parties know the price they are trading at in gold, then their software will give them the market price in gold of their particular animals), but that thought experiment tends to lead down all kinds of rabbit holes (I argue that Shock B still creates a recession in that world, showing the MOE is not usefully though of as a cause).

[Oliver]

To point 1.

The reason people save is so they have something they can turn into goods and services should their income (and creditworthiness) one day not suffice to cover costs. Say late in life or when one is ill. So, over a lifetime, there is a flow in and flow out of non-money just as with money. The asymmetry between money and non-money assets you posit rests on the assumption that people have an income which to save or consume from. It might be more accurate to distinguish between short term cycles of income and consumption and long term cycles of saving and dissaving.

You then say:
If individuals want to save in the form of land, they won't collectively be able to if the stock of land does not increase. There will be an excess demand for land in the land market, if the price of land does not rise to dissuade that desire to save. There is nothing an individual can do if he wants to buy more land but nobody else wants to sell.

Since when has a rise in the price of land or other non-money assets dissuaded people from wanting to save in them? Expected rises in value (or corresponding income streams) are THE reason want to save in them and not in money. Also, a rise or fall in price of assets says nothing about the trade volume.

If individuals want to save in the form of money, they won't collectively be able to if the stock of money does not increase. There will be an excess demand for money in all the money markets, except those where the price of the non-money thing traded in that market is flexible and adjusts to clear that market.

If you tie the stock of money to a commitment (credit), the decision to save is always also a decision not to pay back debt, which in turn must be authorized by the issuing bank. In a credit economy, saving is always also an expansion of the medium of account.

[Market Fiscalist]

I really like this post.

I have a question on "If you want to increase the stock of land in your portfolio, there's only one way to do it. You must increase the flow of land into your portfolio, by buying more land." Why would it not be true to say "if you want to increase the stock of land (or bonds/equities) in your portfolio, there are two ways to do it. You can increase the flow of land into your portfolio, by buying more land (selling it for money). Or you can decrease the flow of land out of your portfolio, by selling less land (buying less money)? If you were a land trader this would certainly make sense.

I agree with point 2, and I think the conclusions you draw in the post can be derived from that point alone. But am I missing something on point 1?

[marcel proust]

... but I've got a one-track mind

I prefer Solow's track myself (1st one here.)

[Nick Rowe]

JKH: "Maybe this is nit picking, or missing your point, or something, but I'm having trouble visualizing why an individual in a sticky-price market wouldn't unstick his asking price."

That's neither nit-picking, nor missing the point. That is the big question in short-run macro, to which we do not really have a satisfactory answer. "Why are (some) prices sticky?". We tell stories about the costs of changing prices ("menu costs"), and about the difficulties that come from coordination.

dlr: you lost me a little there, I'm afraid. (May be my fault.) But I don't need Pm to exactly halve (I just made that assumption for concreteness) in shock B. As long as Pm falls when the demand for the MOA increases (as it probably will), MPm/P falls, and unless shock B also happens to reduce the demand for MPm/P by exactly the same amount (which would be a bit of a fluke) we get a recession.

I don't know if you ever saw my old Minimalist model of Recessions post, but I do work through the case where there is an MOA (with sticky prices) but no MOE. The exact same shock in that model causes a recession in a 2-market (MOE) version and no recession in a 3-market (no MOE) version.

Dunno if that helps.

Oliver: "So, over a lifetime, there is a flow in and flow out of non-money just as with money."

You are right. When I was writing the post, I was scared someone would say that! Let me just leave that as unfinished business. But note that when non-money assets flow out, money flows in, because we sell those non-money assets for money.

If there's an excess demand for land, the price of land (eventually) rises, reducing the rent/price ratio, reducing the rate of return on owning land, reducing that excess demand (unless there's a bubble because people extrapolate those rising prices).

MF: Thanks!

Yes, specialist land dealers (used car dealers, or market-makers in stocks) are different because they hold an inventory of land which they offer to buy and to sell. Because the markets in those goods are not like Walrasian markets where ultimate buyers buy directly from ultimate sellers. They are like retailers. But we are all dealers when it comes to money. Most (nearly all) economic models abstract from those dealers in non-money goods, to simplify. But if your model contains money, then that simplification makes no sense at all.

marcel: Aha! You found it. I couldn't remember it was Solow. Thanks!

[Majromax]

> You are right. When I was writing the post, I was scared someone would say that! Let me just leave that as unfinished business. But note that when non-money assets flow out, money flows in, because we sell those non-money assets for money.

What happens if non-money assets are lost?

Imagine I'm a typical agent, so I expect to have a more or less constant stock of money while accumulating equities for retirement. Money-flows are balanced, and there's a net flow into equities.

If one of my holdings goes bankrupt, then I need to make up for that loss. I'll seek to sell more of my time for money (or spend less of my money on consumption) to increase the accumulation of equities. However, since the shock happened because of a loss of assets, the market price of equities is still a fair price -- there isn't a supply/demand shift.

I think in aggregate this looks like a preference-shift, but it's one that could still look like a recession. If instead of equities I store apples in my basement, and instead of bankruptcy some worms get in, then I'll still have to cancel the appointment with the barber. Equities are just really funny because of the time-premium involved.

[JKH]

Nick,

"That is the big question in short-run macro, to which we do not really have a satisfactory answer. "Why are (some) prices sticky?"."

I'm roughly aware of that question. The real world complexity of corporate balance sheet management, including liquidity and capital/profitability management, makes the answer far more complex than the mere quest for the medium of exchange. Balance sheet management is essential in providing the liquidity and profitability flexibility and buffering action that in turn allow for the option of lags in price adjustment.

I was asking the question in the context of your post, which is a much simpler story.

[JKH]

TMF

As a courtesy to you, that's exactly right.

As a courtesy to Nick, please stop.

[JKH]

Nick,

Further to my last

On the other hand, maybe you're just assuming all that sort of stuff in the background when assuming sticky prices in the simple story

In which case I am missing the point in that sort of way

[Oliver]

Thanks, I'll wear that response with pride.

But I'm not sure it, or my own comment for that matter, have helped my understanding of your main point.

Are you saying that because money, in your opinion, is a hub & spoke system, the (change in) desire to hoard it will clog the hub and thus disturb the equilibrating flow from one money market to another, which is needed because prices in different markets are not equally sticky, unless it is offset by the central bank?

[Jacques René Giguère]

Oliver: as an Industrial Organisation guy (and physicist thinking of electrical network equilibrium), your idea of hub and spoke is interesting. Might we have the opinion of some highway engineer who knows about contamination of traffic patterns through interchanges?

[Nick Rowe]

Jacques Rene: My ancient post on hub-and-spoke model of money.

[Nick Rowe]

Oliver: even if all prices are equally sticky (which is the simplest case) we get a recession. If some prices are stickier than others, we get a recession, but we only notice the excess supply of goods in the sticky-price markets.

[Oliver]

... whereas in the non sticky-price markets we only observe falling prices. OK, but then why all the emphasis on different types of markets, if recessions occur equally in all types but just show different symptoms?

Also, you write:

An excess demand for money might be observed in any market.
...prices in the flexible-price markets will still be affected by the excess demand for money.

vs.

There will be an excess demand for money in all the money markets, except those where the price of the non-money thing traded in that market is flexible and adjusts to clear that market.

Is that a before and after thing? Do flexible prices solve the problem of an initial excess demand for money? If so, is there a recession in flexible markets or not?

@ Jacques René

I was referring to Nick's old post. But my understanding of it may well be contaminated by my background in architecture.

[Jacques René Giguère]

Thanks Nick. I am not that old (on the blog that is,having comme after you losing it...). The analogy really holds as all frequent fliers know that "Hell is Atlanta-Hartsfield but to get there you have to go through Chicago-O'Hare".