|Born||April 30, 1927|
|Died||June 15, 2012 85) (aged|
|Institution|| Columbia University (1966–95)|
Brown University (1959–66)
University of Chicago (1955–58)
|Chicago School of Economics|
|Alma mater|| University of Chicago (MA, PhD)|
|Contributions||Analysis of money |
Analysis of inflation
|Awards||Fellow, Econometric Society (1975)|
Phillip David Cagan (April 30, 1927 – June 15, 2012) was an American scholar and author. He was Professor of Economics Emeritus at Columbia University.
Born in Seattle, Washington, Cagan and his family moved to Southern California shortly thereafter. Cagan joined the U.S. Navy at age 17 and fought in World War II. After the war, Cagan decided to go to college, and earned his B.A. from UCLA in 1948. Cagan received his M.A. in 1951, and his Ph.D. in Economics in 1954 from the University of Chicago.
After graduate school, Cagan joined the National Bureau of Economic Research (NBER) in New York City where he worked for two years. Then Cagan re-entered academia, teaching at the University of Chicago for three years, and at Brown University for seven years. In 1966 Cagan was hired by Columbia University, where he taught economics for nearly thirty years — save for fifteen months spent in Washington, D.C., when he was on the staff of the Council of Economic Advisors (CEA).
During his time at Columbia, Cagan was also associated with the American Enterprise Institute (AEI) in Washington, D.C., writing on public policy issues.
Cagan lived in Palo Alto, California during his last years.
Cagan's work focused on monetary policy and the control of inflation. Cagan has published over 100 books, journal articles, reviews, reports, and pamphlets on these and other topics in macroeconomics. He is perhaps best known for Determinants and Effects of Changes in the Stock of Money, 1875–1960, a work that sought to identify the "causal relationships between changes in money, prices and output."The book, part of the NBER series that contained Milton Friedman and Anna J. Schwartz's Monetary History of the United States, 1867–1960, was praised for its "careful empirical work" and called "the most complete study in the area."
Cagan's most important contribution to economics, however, is the article included in Milton Friedman's edited volume Studies in the Quantity Theory of Money (1956), entitled "The Monetary Dynamics of Hyperinflation,"a work that became an "instant classic" in the field.
The article, which contained "extensive manipulation of differential equations and an ingenious use of exponentially weighted averages",analyzed seven hyperinflations and found that "the parameters of money demand functions estimated during hyperinflation generally satisfy the condition of dynamic stability that precludes the inflation from being self-generating, or displaying period-to-period oscillations."
After its publication, Cagan's article generated a significant body of work, as a number of leading macroeconomists either reexamined or extended Cagan's model, most notably "Barro (1970), Sargent and Wallace (1973), Frenkel (1975, 1976a, 1976b, 1977, 1979), Sargent (1977), Abel et al. (1979), Salemi (1979), and Salemi and Sargent (1979)."In addition, monetary economists today often refer to a "Cagan demand function" when modeling the real value of money.
Because of the impact that this groundbreaking work had upon the economics profession, Cagan was elected Fellow of the Econometric Society (the most prestigious society in the field),and was mentioned as a possible candidate for the Nobel Prize in Economics. However, following his death in 2012, he is no longer eligible for a Nobel Prize.
In economics, inflation is a general rise in the price level in an economy over a period of time, resulting in a sustained drop in the purchasing power of money. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time.
Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation. Monetarist theory asserts that variations in the money supply have major influences on national output in the short run and on price levels over longer periods. Monetarists assert that the objectives of monetary policy are best met by targeting the growth rate of the money supply rather than by engaging in discretionary monetary policy.
In economics, "rational expectations" are model-consistent expectations, in that agents inside the model are assumed to "know the model" and on average take the model's predictions as valid. Rational expectations ensure internal consistency in models involving uncertainty. To obtain consistency within a model, the predictions of future values of economically relevant variables from the model are assumed to be the same as that of the decision-makers in the model, given their information set, the nature of the random processes involved, and model structure. The rational expectations assumption is used especially in many contemporary macroeconomic models.
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The Phillips curve is a single-equation economic model, named after William Phillips, describing an inverse relationship between rates of unemployment and corresponding rates of rises in wages that result within an economy. Stated simply, decreased unemployment, in an economy will correlate with higher rates of wage rises. Phillips did not himself state there was any relationship between employment and inflation; this notion was a trivial deduction from his statistical findings. Samuelson and Solow made the connection explicit and subsequently Milton Friedman and Edmund Phelps put the theoretical structure in place. In so doing, Friedman was to successfully predict the imminent collapse of Phillips' a-theoretic correlation.
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Monetary policy is policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing or the money supply, often as an attempt to reduce inflation or the interest rate to ensure price stability and general trust of the value and stability of the nation's currency.
A macroeconomic model is an analytical tool designed to describe the operation of the problems of economy of a country or a region. These models are usually designed to examine the comparative statics and dynamics of aggregate quantities such as the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the level of prices.
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