Studying the Fisher equation and the possibility to apply it in virtual economy
Importance The Central Bank regulates monetary circulation in the country. Low efficiency of the Central Bank’s activities stems from a weak theoretical framework. In particular, the Central Bank and other regulatory authorities rely upon the quantity theory of money, which is illustrated with the Fisher equation, thus causing direct errors in the Central Bank’s activities and economy as a whole. Objectives The objective of the research is to prove the erroneous nature of the quantity theory of money and the equation of exchange, their inapplicability to management of pricing processes. Methods I applied the methods of analysis, synthesis and formal logic, and comparison when investigating the dynamics of the stock and foreign exchange markets of the USA. Results The article presents evidence supporting that the quantity theory of money and the Fisher equation is inapplicable to the theory and practice of central banks when they effectuate and use monetary methods of regulating the real economy. In the mean time, the Fisher equation and the quantity theory of money can be used in virtual economy. Conclusions and Relevance The theory of inflation should be developed, i.e. the amount of money in economy does not basically influence the level of prices. The Central Bank should focus on stimulating production and economic growth, rather than countering the inflation, and adhere to the law of circulation of money, rather than the quantity theory of money as it is incorrect. The State should pay special attention to the virtual economy since it accumulates more money than the real economy.