electoral outcomes with probabilistic voting and nash social welfare maxima abstract this paper provides unexpected support to nash s view of how bargaining determines the social choice we first present a spatial model of electoral competition with probabilistic voting and a very close relation between voters preferences and their choice probabilities the outcome of the electoral competition game is then shown to be precisely the social alternative that maximizes a nash type social welfare function theorem 1 this electoral outcome is also interpreted as a unanimity likelihood maximum corollary 1 within our framework existence and uniqueness of such an outcome are guaranteed corollaries 2 and 3

food security in the united kingdom external supply risks abstract this paper examines some of the factors that contribute to an understanding of the notion of food security for a developed country like the uk these include the level of self sufficiency the agricultural sector s dependence on imported inputs and openness of the economy an interesting parallel between the food security debate and that of security of energy supplies is also explored a quantitative assessment of the security of external food supply based on indices borrowed from the recent literature on energy security shows that whilst the position of the uk may have worsened slightly the level of external supply risk is very low in consequence security of food supply in the uk does not appear to be an issue that warrants alarm or undue concern although the debate is likely to rumble on

shirking and sorting in a political market with finite lived politicians this paper analyzes principal agent slack in the context of a political market composed of voters challengers and incumbents the introduction of a last period via finite livedness in combination with voters imperfect information about politicians preferences causes time varying shirking behavior on the part of politicians political markets eventually sort out those politicians with significantly deviant policy preferences potentially providing a solution to the last period problem and enabling politicians to make credible commitments in the extreme sorting can insure that it is not worthwhile for potential shirkers to run for office a systematic relationship between political shirking and number of terms in office may exist and depends on how quickly sorting takes place we show that evidence of little if any shirking is quite consistent with politicians having diverse and strongly held policy preferences in addition if sorting is a significant feature of political markets cross sectional studies will tend to oversample little and non shirking politicians compared to longitudinal studies reinterpretations of existing empirical work are also discussed

brand names and barriers to entry in political markets the most obvious implication of this discussion is that barriers to entry in politics will raise the costs of governments transferring wealth more generally it will raise the cost of public provision of goods and services in the case of transfers the inefficiency created by barriers depends on whether one values government transfers the total transfer the transfer to the beneficiaries plus the politician s commission is maximized by the politician who can create support the most efficiently for other governmental services which are viewed as efficiency creating e g national defense these barriers reduce the amount of a valuable output we desire to purchase this result also supplies a possible efficiency explanation for the limitation on the number of terms imposed on the presidency and many governorships brand names are not really the barriers information costs are what cause brand name to be used and are the more fundamental barrier to entry what we are arguing is that private and not public organizations can in certain respects better overcome these information costs

inflation targeting in emerging market and transition economies lessons after a decade abstract starting in the early 1990s several emerging market and transition economies adopted inflation targeting it in this paper we discuss a number of issues that arise in this context a the definition of it b the role of preconditions for it c the use of intermediate exchange rate targets and d the specification of inflation targets our overall conclusion is that suitably modified it is a useful policy strategy for emes

oil vulnerability index of oil importing countries abstract this paper assesses the relative oil vulnerability of 26 net oil importing countries for the year 2004 on the basis of various indicators the ratio of value of oil imports to gross domestic product gdp oil consumption per unit of gdp gdp per capita and oil share in total energy supply ratio of domestic reserves to oil consumption exposure to geopolitical oil market concentration risks as measured by net oil import dependence diversification of supply sources political risk in oil supplying countries and market liquidity the approach using the principal component technique has been adopted to combine these individual indicators into a composite index of oil vulnerability such an index captures the relative sensitivity of various economies towards developments of the international oil market with a higher index indicating higher vulnerability the results show that there are considerable differences in the values of individual indicators of oil vulnerability and overall oil vulnerability index among the countries both inter and intraregional

capture and ideology in the economic theory of politics the economic theory of regulation long ago put public interest theories of politics to rest these theories have correctly been viewed as normative wishings rather than explanations of real world phenomena they have been replaced by models of political behavior that are consistent with the rest of microeconomics anthony downs 1957 james buchanan and gordon tullock 1965 george stigler 1971 sam peltzman 1976 recently however debate has arisen over whether some version of a public interest theory of regulation will have to be readmitted to our thinking about actions and results in the political arena what is at issue is the empirical importance of the altruistic publicly interested goals of rational actors in determining legislative and regulatory outcomes james kau and paul rubin 1979 kalt 1981 peltzman 1982 this study assesses the nature and significance of publicly interested objectives in a particular instance of economic policymaking u s senate voting on coal strip mining regulations the existence of such objectives is of course no contradiction of the economic view of human behavior kenneth arrow 1972 gary becker 1974 and may well be rooted in genetic biological history becker 1976 jack hirshleifer 1978 generally however individuals altruistic publicly interested goals have been given little attention this reflects the judgment that such goals are so empirically unimportant as to allow the use of occam s razor in positive models or well founded apprehensions that these goals are unusually difficult to identify measure and analyze notwithstanding the latter problem we find that approaches which confine themselves to a view of political actors as narrowly egocentric maximizers explain and predict legislative outcomes poorly the tracking and dissecting of the determinants of voting on coal strip mining policy suggest that the economic theory of politics has been prematurely closed to a broader conception of political behavior

monetary mystique secrecy and central banking abstract the paper contains a discussion of the role of secrecy in the implementation of monetary policy it documents the federal reserve s defense of secrecy as argued in a recent freedom of information act suit the federal reserve s arguments are evaluated on the basis of economic theory theoretical papers related to the secrecy issue are reviewed the discussion highlights a number of potential benefits and costs of central bank secrecy and identifies some conditions under which secrecy could be socially beneficial

do central banks react to house prices we estimate the federal reserve s the bank of england s and the bank of japan s responses to house prices we show that generalized method of moments estimates of a taylor rule augmented with house prices are biased and dispersed we then use full information methods and estimate the policy rule together with a var for the nonpolicy variables these estimates are also biased we propose an alternative approach and estimate a dynamic stochastic general equilibrium model embedded with a monetary rule with a direct response to house prices we find that house prices played a separate role in the reaction functions of these central banks

money growth targeting by the bundesbank abstract the recent debate over monetary strategies concludes that monetary and inflation targeting lead to very similar patterns of central bank behavior why then do central banks insist on the strategies they use in this paper we develop an answer from political economy arguing that monetary strategies are helpful in solving internal and external coordination problems for the central bank we illustrate the point by reviewing the bundesbank s experience with money growth targeting in the mid 1970s monetary targeting was a signal that the previous monetary regime had been overcome and a means to define the role of monetary policy vis a vis other players in the macroeconomic policy game and to structure the internal monetary policy debate

interest rate smoothing and price level trend stationarity abstract this paper discusses the definition and mechanics of central bank interest rate smoothing under rational expectations a tension arising between interest rate smoothing and macroeconomic stabilization objectives induces non trend stationary price level and money stock behavior the paper thereby helps explain why such nominal non stationarities are widely observed further implications are drawn for base drift distribution of real returns on long term fixed rate nominal debt and operating characteristics of interest rate pegs and policy instruments

an overlapping generations model of electoral competition this paper presents a dynamic model of political competition between two parties with different policy preferences a party is explicitly modeled as a sequence of overlapping generations of candidates all of whom face finite decision horizons in general there is a conflict between the interests of the individual policymakers and those of the party which includes subsequent generations of candidates we characterize this conflict and suggest a scheme of intergenerational transfers within the party which can resolve or mitigate this conflict the paper shows how the overlapping generations model can be usefully applied to the political arena this abstract was borrowed from another version of this item

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

does globalization affect growth evidence from a new index of globalization the study develops an index of globalization covering its three main dimensions economic integration social integration and political integration using panel data for 123 countries in 1970 2000 it is analysed empirically whether the overall index of globalization as well as sub indexes constructed to measure the single dimensions affect economic growth as the results show globalization indeed promotes growth the dimensions most robustly related with growth refer to actual economic flows and restrictions in developed countries although less robustly information flows also promote growth whereas political integration has no effect

bias in federal reserve inflation forecasts is the federal reserve irrational or just cautious abstract inflation forecasts of the federal reserve seem to have systematically under predicted inflation from the fourth quarter of 1968 until volcker s appointment as chairman and to systematically over predict it afterwards until the second quarter of 1998 furthermore under quadratic loss commercial forecasts seem to have information not contained in those forecasts to investigate the cause of this apparent irrationality this paper recovers the loss function implied by federal reserve s inflation forecasts the results suggest that the cost of having inflation above an implicit time varying target was larger than the cost of having inflation below it for the period since volcker and that the opposite was true for the pre volcker era once these asymmetries are taken into account the federal reserve s inflation forecasts are found to be rational

credibility and policy convergence in a two party system with rational voters the traditional approach to modeling political parties behavior based upon the contribution of anthony downs 1957 assumes that the parties unique objective is to win elections thus they maximize their popularity the crucial implication of this assumption for a two party system is that if the two parties have the same information about voters preferences full convergence of policies results from electoral competition this is the crucial implication of the median voter theorem more generally it may be argued that different parties are motivated differently because they represent different constituencies parties may not care only about winning elections per se but also about the quality of the policies resulting from an election in this case the candidates of the two parties view winning an election not only as a goal per se but also as a means of implementing a better policy for their respective constituencies this paper shows that electoral competitions imply dynamic inconsistency if the voters are modeled as rational and forwardlooking agents and parties do not care exclusively about being elected but also about which policy to implement once elected the dynamic inconsistency arises as follows the parties have an incentive to announce convergent platforms to increase their chances of election however if the elected party is not committed to its electoral platform it has an incentive to follow its most preferred policy rather than the policy announced in its platform if voters are rational they account for this incentive thus in general in a one shot electoral game the only timeconsistent equilibrium is one in which no convergence is possible the two parties follow their most preferred policies and the voters rationally expect this outcome full convergence of parties platforms results only as a limiting case when the parties are completely indifferent with respect to the quality of the policies resulting from the election thus these results differ from the existing literature on ideologically motivated politicians for instance donald wittman 1977 1983 randall calvert 1985 which implicitly assumes the possibility of binding commitments to electoral platforms complete or partial policy convergence can be the outcome of political competition if the interaction between the parties and the voters is modeled as an infinitely repeated game in fact if the candidates have concave objective functions the welfare maximizing policy rule implies a complete convergence of parties policies however this cooperative and agreed upon policy may or may not be sustainable as a subgame perfect equilibrium depending on parameter values in particular it depends on the discount rates of the two parties the degree of polarization of their preferences and the relative popu graduate school of industrial administration carnegie mellon university pittsburgh pa 15213 and national bureau of economic research cambridge ma 02138 this paper is based upon a chapter of my unpublished doctoral dissertation at harvard university i am greatly indebted to jeffrey sachs for directing my attention toward these issues and for many conversations i also wish to thank andrew abel dilip abreu olivier blanchard ramon caminal andrew caplin alex cukierman morris fiorina benjamin friedman herschel grossman howard rosenthal and the referees for very useful comments the responsibilitv af anv n mtnkieis af calrirp nfnlv mine the result of policy convergence in a two party system is more general than the median voter theorem for discussions of convergence results not at the median see john ledyard 1984 peter coughlin 1984 coughlin and shmuel nitzan 1981 melvin hinich 1977 for earlier work on spatial competition see richard mckelvey 1975 hinich ledyard and peter ordeshook 1972 1973 and the references quoted therein the present paper focuses on the result of convergence rather than on the median voter theorem per se

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

what does the bundesbank target abstract although its primary ultimate objective is price stability the bundesbank has drawn a distinction between its money focused strategy and the inflation targeting approach recently adopted by a number of central banks we show that holding constant the current forecast of inflation german monetary policy responds very little to changes in forecasted money growth we conclude that the bundesbank is much better described as an inflation targeter than as a money targeter an additional contribution of the paper is to apply the structural var methods of b bernanke and i mihov measuring monetary policy working paper no 5145 national bureau of economic research cambridge ma june 1995 to determine the optimal indicator of german monetary policy we find that the lombard rate has historically been a good policy indicator although the use of the call rate as an indicator cannot be statistically rejected

an expanded approach to analyzing policy minded candidates a random pivot model is used to expand the theory of policy minded candidates previous results wittman 1977 1983 cox 1984 hansson and stuart 1984 are derived under weaker assumptions new results about candidate strategies in multiple elections are also obtained the thrust of these results supports calvert s 1985 finding that office seeking and policy mindedness are countervailing forces in election contests

monetary policy transmission interest rate rules and inflation targeting in three transition countries in 1991 the rate of inflation in the czech republic hungary and poland was between 35 and 70 at the end of 2001 it is below 8 we setup a small structural macro model of these economies to explain the process of disinflation contrary to a widespread skepticism which permeated a large part of previous research on these issues we show that a simple open macroeconomic model along the lines of svensson 2000 journal of international economics with forward looking inflation and exchange rate expectations can adequately characterize the relationship between the output gap inflation the real interest rate and the exchange rate during the course of transition we use the estimated models to interpret the main features of monetary policy in each country and identify the channels of policy transmission we characterize the policy rules and assess the relative importance of the interest rate channel on aggregate demand and the exchange rate channel which affects both aggregate demand and supply in determining the path of dis inflation in the same context we also tentatively analyze the consequences of attempting a faster path of disinflation finally we evaluate the appropriateness of the inflation targeting framework which has been adopted recently in all three countries and discuss to what extent it represents a discontinuity with the past

how the world achieved consensus on monetary policy the worldwide progress in monetary policy is a great achievement and especially considering the situation 30 years ago a remarkable success story i describe how the world achieved a working consensus on the core principles of monetary policy by the late 1990s i survey the muddled state of affairs in the 1970s and then ask what happened in federal reserve policy to produce an understanding of the practical principles of monetary policy how did formal institutional support for targeting low inflation abroad follow from an international acceptance of these ideas and how did a consensus theoretical model develop in academia i explain how the modern theoretical consensus known alternatively as the new neoclassical synthesis or the new keynesian model of monetary policy reinforces key advances the priority for price stability the targeting of core rather than headline inflation the importance of credibility for low inflation and preemptive interest rate policy supported by transparent objectives and procedures of course a working consensus does not constitute complete agreement accordingly the conclusion identifies important monetary policy issues that remain to be explored

do real balance effects invalidate the taylor principle in closed and open economies this paper examines the determinacy implications of forecast based monetary policy rules that set the interest rate in response to expected future inflation in a neo wicksellian model that incorporates real balance effects we show that the presence of such effects in closed economies restricts the ability of the taylor principle to prevent indeterminacy of the rational expectations equilibrium the problem is exacerbated in open economies particularly if the policy rule reacts to consumer price rather than domestic price inflation however determinacy can be restored in both closed and open economies with the addition of monetary policy inertia

inflation targeting matters evidence from oecd economies sacrifice ratios using data from oecd economies we show that inflation targeters suffered smaller output losses during disinflations when compared to nontargeters we also study why some countries choose to inflation target while others do not and find that higher average inflation and smaller debt levels render the adoption of the regime more likely applying heckman s procedure to control for selection bias does not alter the link between inflation targeting and less costly disinflations

monetary policy trade offs and the correlation between nominal interest rates and real output the authors present a structural model of the u s economy that combines their price contracting specification with a term structure relationship an aggregate demand curve and a monetary policy reaction function the model matches important features of postwar data well and provides a structural explanation of the correlation between real output and the short term nominal rate of interest the authors perform a battery of monetary policy experiments that show that as viewed through the lens of this model monetary policy has struck a good balance recently among competing monetary policy objectives copyright 1995 by american economic association

using extraneous information to analyze monetary policy in transition economies abstract empirical macroeconomics is plagued by small sample size and large idiosyncratic variation this problem is especially severe in the case of the transition economies we utilize a mixed estimation method incorporating prior information from oecd country data to estimate the parameters of a reduced form transition economy model an exactly identified structural var model is constructed to analyze monetary policy in the transition economies the oecd information increases the precision of the impulse response functions in the transition economies the method provides a systematic way to analyze monetary policy in the transition economies where data availability is limited

policy mandates and institutional architecture abstract the model developed in this paper examines the interaction between monetary and macroprudential policies in promoting macroeconomic stability highlighting the role of shocks and policy instruments the paper shows that assigning the mandates of monetary and financial stability to independent authorities enhances macroeconomic stability only when some level of coordination exists between policymakers and it is the dominant institutional arrangement when monetary stability is socially important instead when society values financial stability internalising the policy spillovers by assigning the two mandates to a single policymaker could become the dominant configuration depending on the model s parameter values

political control and public sector savings evidence from the states the right to access and ultimately spend public sector savings is determined by the party which can control the politicaloutcome this implies that anticipatedfuture changes in the state s controllingpolitical party may systematicallyadversely affect current savings extendingthe life cycle permanent income model ishow that a representative legislator willopt to forgo current saving in favor ofspending when his prospects for futurepolitical control diminish estimating apanel data model of 39 states from1973 1995 i find that an actual futurechange in the controlling party of astate s lower house significantly reducescurrent saving

connected we stand a network perspective on trade and global food security we analyze the link between virtual water trade that is the flow of water embodied in the international trade of agricultural goods and vulnerability to external shocks from the vantage point of network analysis while a large body of work has shown that virtual water trade can enhance water saving on a global scale being especially beneficial to arid countries there are increasing concerns that openness makes countries more dependent on foreign food suppliers and in this way more prone to external shocks our evidence reveals that the increased globalization witnessed in the last three decades is not associated with the increased frequency of adverse shocks in food production furthermore building on recent advances in network analysis that connect the stability of a complex system to its topological features we find that the world is more interconnected but not necessarily less stable

ireland and switzerland the jagged edges of the great inflation abstract ireland and switzerland both had rising inflation during the early 1970s but their experiences diverged thereafter so that they form a rare example of two countries whose inflation rates are poorly correlated with one another over the great inflation period this paper proposes that the monetary policy neglect hypothesis can account for both countries experiences extensive archival evidence is considered for each country regarding the doctrines that guided 1970s policymaking this evidence establishes that switzerland s better record is accounted for by the competition between monetary and nonmonetary views of inflation being resolved earlier and more decisively in favor of the monetary view in ireland by contrast nonmonetary views of inflation dominated policymaking throughout the 1970s

an analysis of legislative inefficiency and ideological behavior this paper explores the theory of legislative inefficiency and the role of ideological preferences of legislators it is shown that inefficiency can be caused by many factors other than legislative ideological behavior three major sources are emphasized cost of voting and policy position information asymmetries across groups of voters and barriers to entry in political competition ideological preferences of legislators is not a cause of inefficiency independently legislators who care about both policy and winning will give inefficient representation to their constituents only when groups of voters are prevented from participating equally in the legislative process

macroeconomic stability and the preferences of the fed a formal analysis 1961 98 the rate of inflation in the u s has declined from an average of 4 5 in the period 1960 79 to an average of 3 6 in 1980 98 between those two periods the standard deviations of inflation and the output gap have also declined these facts can be attributed to the interaction of three possible factors a shift in central bank preferences a reduction in the variability of aggregate supply shocks and a more efficient conduct of monetary policy in this paper we identify the relative roles of these factors our framework is based on the estimation of a small structural macro model for the u s economy jointly with the first order conditions which solve the intertemporal optimization problem faced by the fed overall our results indicate that the policy preferences of the fed and in particular the implicit inflation target have changed drastically with the advent of the volcker greenspan era in addition we find that the variance of supply shocks has been lower and monetary policy has been conducted more efficiently during this period

what should central banks do what should be their macroeconomic objectives and operations before turning to the normative question of what central banks hereafter cbs should do we need to deal with the contentious issue of what cbs actually can do in the field of monetary control one might think that this should be a relatively straightforward matter of fact instead there is a yawning chasm of mutual misunderstanding which has persisted for decades between economists and those working in cbs which has bedevilled the subject virtually every monetary economist believes that the cb can control the monetary base hereafter mo and subject to errors in predicting the monetary multiplier the broader monetary aggregates as well after all mo apart from some relatively unimportant qualifications about coins from the mint represents the liabilities of the cb and the cb should be able to control its own liabilities by open market operations hence the normal assumption is that mo is controllable within a narrow margin if the central bank should fail to do so it must be because it has chosen some alternative operational guide for its open market operations e g holding interest rates constant at some level which operational rule is frequently decried as sub optimal assuming that cbs can almost perfectly control mo economists have constructed several simulated schemes of how an optimal rule for so doing might be set up mccallum i993a b provides good recent examples almost all those who have worked in a cb believe that this view is totally mistaken in particular it ignores the implications of several of the crucial institutional features of a modern commercial banking system notably the need for unchallengeable convertibility at par between currency and deposits and secondly that commercial bank reserves at the cb receive a zero or belowmarket rate of interest the first means that fluctuations in the public s demand for cash which are both strongly seasonal and somewhat unpredictable must be accommodated the second means that commercial banks will not willingly hold free reserves at the end of each day assuming for this purpose that a stated reserve ratio has to be held on each day rather than averaged over say a couple of weeks beyond that needed to meet late fluctuations in the demand for cash after the money market has closed or become thin only if interest rates fall to the very low levels of the i930s and or risks of interest rate variability or late in the day cash runs increase would commercial banks increase their desired free reserves thus given the

detrending and the money output link international evidence 1 introduction and background the question of whether there exists an empirical link between nominal money and real output has been subjected to a variety of modern econometric techniques producing conflicting results for example stock and watson 1989 use a vector autoregressive var model that accounts for several important economic variables and find that money exerts a statistically significant effect on real economic activity friedman and kuttner 1992 1993 on the other hand show that using the same specification as stock and watson but extending their sample through the 1980s obviates the money income link friedman and kuttner s results indicate that interest rates are relatively more useful in explaining movements in output thoma 1994 also reports that changes in money do not have a statistically significant impact on output in the united states more recent studies both theoretical and empirical also have shown money to have little or no direct effect on economic cycles rudebusch and svensson 1999 2002 for example conclude that the behavior of money real or nominal has no marginally significant impact on deviations of real output from potential the output gap once past movements in the gap and real rates of interest are accounted for such findings on the basis of what meyer 2001 refers to as the consensus macro model have achieved an influential position among macroeconomists and policymakers 2 other studies challenge the argument that money does not affect real output an early study by christiano and ljungqvist 1988 using a bivariate var model reports the existence of a statistically significant money to output relation in u s data davis and tanner 1997 using monthly u s data extending back to the mid 1800s find that even after interest rate effects are allowed for money remains statistically significant in explaining short run movements in real output using a rolling regression approach swanson 1998 reports a statistically significant relation between money measured as simple sum aggregates and as divisia measures and output even after an interest rate spread variable is added to the model hafer and kutan 1997 considered whether different stationarity properties of the data have influenced reported outcomes since most prior studies assume difference stationarity hafer and kutan demonstrate that estimating var models that include money and interest rate variables under the existence of trend stationarity can dramatically affect the conclusion indeed they find that using a trend stationarity assumption yields the finding that money significantly affects real output movements in the united states a common characteristic of this literature is its focus on the united states there are a few exceptions for example krol and ohanian 1990 apply the stock watson specification to data for canada germany japan and the uk although money actual and detrended significantly affects output in the uk krol and ohanian find no such affect in japan canada and germany they conclude that although detrending the growth rate of u s money affects conclusions about the role of money little is gained from this approach when applied to the other countries another exception to the u s focus is a recent study by hayo 1999 using data from 14 european union eu countries plus canada japan and the united states hayo shows that money output test results are not sensitive to the use of data in levels versus data in differences an obvious question to ask then is whether nominal money is relatively more useful than interest rates in explaining movements in real output across a wider variety of countries that includes industrial and developing economies although the studies of krol and ohanian and hayo represent a broader analysis they too focus on the money output relation in relatively industrialized financially developed countries