ABSTRACT
Monetary theory has undergone a remarkable change in the 1980s. The most important change has been in the method of analysis that is now used by the majority of economists investigating questions concerned with monetary theory. Generally speaking, in 1975 the monetary theory literature was of two types. A small literature beginning at the level of the individual agent (called the microfoundations literature) was concerned with why money was a useful commodity. However, most monetary theory, surveyed by Barro and Fischer (1976), effectively took it for granted that money was a useful commodity and proceeded to examine the optimal quantity of money holdings and the magnitude of income and interest rate elasticities. This analysis was in the context of aggregative models; any choice-theoretical models were generally partial equilibrium and were used to justify particular aggregative relationships.
