budget deficits stability and the monetary dynamics of hyperinflation hyperinflationary processes usually occur in countries with extremely large budget deficits in models of inflationary finance with rational expectations e g buiter 1987 large budget deficits cannot lead to hyperinflation the purpose of this paper is to reconcile the standard theoretical model with the stylized facts it shows that by introducing a lag in the adjustment of the money market into the standard inflationary finance model large budget deficits are indeed the main reason for hyperinflation the paper also provides an explanation for the ineffectiveness of moderate reductions in the deficit in reducing inflation and argues that fiscal lags can be destabilizing copyright 1989 by ohio state university press

re examining the buffer stock model of money this paper critically examines recent papers in the buffer stock or supply side disequilibrium models of money the paper first investigates the assumptions at the m icroeconomic level and concludes that even with these assumptions aggregate behavior does not necessarily follow buffer stock models in which excess cash balances are held involuntarily in a simple model with uncertain cash flows it is shown that in the aggregate short run involuntary cash holdings are negligible if the buffer stock story is applicable it is to a broader definition of money than used in most empirical work the second part of the paper examines empirical work and argues that the buffer stock idea cannot be implemented using single equation techniques and that when viewed appropriately current empirical result s refute the buffer stock idea as it is currently modeled copyright 1987 by royal economic society

monetary anticipations and the demand for money reply to mackinnon and milbourne abstract mackinnon and milbourne 1984 in an extended comment on carr and darby 1981 claim that money supply shocks do not enter the money demand function for the united states this reply discusses the economic and econometric errors which led to this conclusion and presents further empirical evidence in support of our approach

money and prices evidence from the g7 countries this paper examines the exogeneity of money and prices within a money demand vector error correction model the exogeneity of the variables is central to several buffer stock models however the paper makes two modifications to the traditional approach the first is to explicitly acknowledge the importance of the supply of money function by including the function alongside its demand counterpart the second is to estimate the behaviour of the nominal sector and real sector simultaneously overall the results from the g7 countries suggest that the concerns raised by buffer stock models are relevant

analysis and recommendations for onshore wind power policies in china abstract recently china s wind power industry is challenged by many problems such as wind power integration and wind curtailment which seriously hinders the development of onshore wind power since china s policy has a direct and significant influence on wind power industry it is vital to analyze and evaluate published policies this paper explores in detail 134 china s onshore wind power policies from 2005 to 2015 so as to provide analytical support for future formulation and implementation of wind power policy based on policy summary from equipment manufacturing industry wind farms and power grid industry this paper evaluates the policies from the perspective of overall plan support policy and policy implementation using fitting method game theory and empirical analysis the results indicate that china s wind policy is gradually becoming perfected for example there are more reasonable objectives and improved support policies however many problems remain to be solved like unreasonable planning imperfect support policies immature trading systems and uncoordinated actions among interest related parties furthermore combined with international experiences suggestions on improving china s wind power policy are proposed from seven aspects

disequilibrium buffer stocks and consumers expenditure on non durables the authors examine the importance of a disequilibrium real balance effect on non durable consumers expenditure in the u k using cointegration techniques and the johansen procedure they first establish a desired long run demand function for liquid assets depending on income wealth and a set of interest rates deviations of liquidity from this desired level cause changes in consumption via intertemporal substitution but via its effect on disequilibrium liquidity consumption is modeled in an error correction framework and is also found to depend on income and financial wealth both the disequilibrium liquidity and wealth terms may be picking up the effects of financial liberalization e g mortgage leak on consumption as funds released will be temporarily held in financial assets they also find some evidence that changes in the distribution of income have an independent effect on aggregate consumption copyright 1991 by mit press

modeling the demand for narrow money in the united kingdom and the united states abstract despite the importance of well specified empirical money demand functions for inference forecasting and policy problems in modeling have arisen concerning the economic theories of money demand the data institutional frameworks financial innovation and econometric implementation by developing constant data coherent m 1 demand equations for the u k and the u s we investigate these issues and explain such puzzles as missing money the great velocity decline and the recent explosion in m 1 the endogeneity of money the lucas critique and the non invertibility of our m 1 models are also discussed

european union energy supply security the benefits of natural gas imports from the eastern mediterranean abstract this paper analyzes the potential of eastern mediterranean offshore natural gas discoveries to increase eu natural gas supply security it presents an overview of the status quo of eu 28 natural gas import dependency the efforts to increase energy security through various measures and the challenges to supply diversification it further provides an analysis of the energy and offshore resource sectors of egypt israel cyprus and lebanon the paper presents projections of domestic natural gas consumption needs for the years 2012 2042 and results show that potentially large quantities will be available for exports an empirical model is used to analyze the capital and transmission costs for exporting gas to europe via the east med pipeline the east med pipeline project is discussed in the broader context of other regional supply options as well as potential u s lng exports to europe the paper concludes that the east med pipeline which has been classified as a project of common interest by the eu should receive policy priority as its benefits in terms of security of supply go beyond those that can be captured in a competitive market and the positive externalities that it provides justify a security premium

inventories and price inflexibility a firm maximizing expected discounted profits taking account of the actions of its competitors choosing price and output before stochastic demand is known and holding inventories or unfilled orders to accommodate discrepancies between output and demand is shown to respond to a change in demand by changing its output whether the demand change is transitory or permanent but by changing the price it charges only if the demand change is permanent this proposition is shown to be consistent with german data the data are qualitative the empirical analysis uses the multivariate conditional logit model the empirical results are summarized by gamma coefficients

velocity and the variability of monetary growth in the united kingdom this paper uses the granger causality method to test on united kingdom data friedman s hypothesis for the united states that the volatility of monetary growth has caused the decline in income velocity the paper concludes that for the united kingdom the volatility of monetary growth does not cause velocity in the granger sense

on the value of virtual currencies nous construisons un modele d analyse pour cerner les facteurs qui influent sur le taux de change des monnaies virtuelles trois elements importent tout d abord l utilisation actuelle d une monnaie virtuelle comme moyen de paiement ensuite la decision d investisseurs prospectifs d acheter de la monnaie virtuelle et de controler ainsi l offre de ce type de monnaie enfin les facteurs qui determineront ensemble l adoption d une monnaie virtuelle par les consommateurs et son acceptation par les commercants

the scourge of the monetarists kaldor on monetarism and on money nicolas kaldor s critique of monetarism from 1970 until his death is described and evaluated it is argued that subsequent events as well as empirical research vindicate his critique kaldor s critique of john maynard keynes s monetary theory is then seen as an extension of his radcliffe views and this paper argues that in this matter kaldor was mechanical in his modeling of the endogeneity of money supply it is suggested that the work of hyman minsky and victoria chick has the potential for further work in this area copyright 1989 by oxford university press

dynamic models of portfolio behavior more on pitfalls in financial model building in an important article in this review william brainard and james tobin have emphasized the role played by the wealth constraint in systems of asset demand equations the wealth constraint gives rise to consistency conditions which must be satisfied by the demand functions when such a system is specified and estimated as brainard and tobin caution care must be taken to ensure that unrealistic coefficients are not inadvertently imposed on omitted equations by failure to recognize the consistency conditions noting that the wealth constraint applies out of as well as in portfolio equilibrium brainard and tobin focus attention on systems in which actual and desired stocks of assets differ they specify a multivariate stock adjustment model wherein the desired change in holdings of any asset depends in general upon all asset stock disequilibria the existence of such stock disequilibria can be implicitly rationalized on the basis of costs of adjustment which impinge on the rate of change of at least some assets in this framework they show that the stock adjustment coefficients must also satisfy certain consistency conditions to ensure that the wealth constraint is satisfied an important feature of their analysis is that the total change in wealth savings plus capital gains is treated as exogenous to the financial sector and the asset flow demands described above are conditional upon the exogenously given change in wealth this strategy of separating the portfolio balance decision from the consumption saving decision is one that tobin has explicitly used and justified in his 1969 article especially pp 15 16 and is one that has been widely and effectively used in modern macroeconometric models the central argument of the present paper is that this separation of flow allocation and stock allocation decisions is not legitimate in the presence of adjustment costs attached to changing the level of individual asset holdings the existence of adjustment costs means that there is no portfolio balance problem per se in the sense of allocation of a given level of wealth but rather a longer run problem of determining an optimal time path for each asset and for the level of consumption thus a natural extension of the brainard tobin model is to treat saving and portfolio decisions in an integrated fashion 2 note that the brainard tobin model is perfectly consistent with any model of savings behavior and hence no logical con queen s university and cowles foundation for research in economics yale university i am grateful to adrian pagan gordon sparks and james tobin for helpful discussions and especially to gary smith who as well as patiently discussing many of the issues provided detailed comments on earlier drafts of this paper this research was partially supported by a national science foundation grant to the cowles foundation and by a canada council grant to the author remaining mistakes and opinions are my own i this also has implications for the common practice in macro economic models of leaving the bond market as implicit care must be taken to ensure that silly behavior is not inadvertently attributed to bondholders william silber tobin and alan blinder and robert solow have initiated research which reintroduces the bond market into macroeconomic models 21t appears to be a fairly general result that the existence of adjustment costs leads to integrated behavior m ishaq nadiri and sherwin rosen have established a similar result for the theory of the firm and robin mukherjee and edward zabel have recently shown that the separation theorem prominent in the finance literature on the mean variance approach to optimal consumption portfolio behavior fails to hold when transactions costs are introduced in my 1975 paper appendix i have argued that the integration of saving and portfolio balance decisions also applies in continuous time models even though such models are characterized by separate stock and flow budget constraints

testing the exogeneity specification underlying the monetary approach to the balance of payments some uk evidence simple theoretical and empirical models of monetary approach to the balance of payments assume the joint exogeneity with respect to reserve flows of domestic variables such as prices real income interest rates domestic credit and the money multiplier failure of this assumption has particularly serious implications for empirical monetary models of the balance of payments this paper tests this exogeneity assumption using uk data for the most recent period of fixed exchange rates the assumed exogeneity specification is decisively rejected

microfoundations for a stable demand for money function scientific revolutions seldom occur when the prevailing theories appear to be performing well it is only when the accepted theory fails to offer a satisfactory explanation of events that new and more robust theories are proposed of these new theories the one which can explain the successful performance of the previous theory and also the events which led to its demise becomes the replacement so it is in the history of modern monetary economics the failure of the partial adjustment model in the mid s is well documented in the united kingdom and the united states and the search for a replacement has been the main point on the agenda since that time there are many contending theories some of which are advocated by the other contributors to this controversy but the mark of a truly better theory which can be claimed to supersede the partial adjustment model is one that can explain the success and the breakdown of the previous theory as well as the events subsequently central to the argument of this paper is the importance of individual behaviour in the context of a market for monetary assets only by means of careful investigation of the microeconomic behaviour underpinning monetary economics at the individual and the market level can the stability of the money demand function be restored it is the purpose of this paper to suggest that the buffer stock approach has gone further than other approaches in dealing with the fundamental micro foundations of the demand for money it does not suggest that other approaches have no microfoundations but they tend to concentrate exclusively on specific aspects of the micro structure such as separability and ignore others relating to the behaviour of individual optimisers in a monetary market the buffer stock model has firm micro foundations which can explain the events both before and after the breakdown of the partial adjustment model section i provides an historical background to the debate and section ii gives a brief overview of buffer stock models which shows that unlike other approaches they have been able to reconcile the past success of the partial adjustment model with its present failure the nature of the microfoundations of buffer stock models are the source of the success and are discussed in more detail in section iii the final section evaluates the buffer stock approach in the light of the other alternatives

testing for financial buffer stocks in sectoral portfolio models empirical implementation of the buffer stock money notion tends to concentrate either on the shock absorber aspects or the spillover disequilibrium money aspects but rarely combines both moreover a potential buffer role for nonmoney assets is usually precluded without explicit empirical testing this paper examines the role of financial buffers in an ex ante sectoral model of expenditure and portfolio behavior incorporating both the shock absorber and spillover aspects in terms of cross equation parameter restrictions these are tested for a range of different assets and liabilities using quarterly data for the u k personal sector copyright 1990 by mit press

on the reinterpretation of money demand regressions a stylized fact concerning estimated money demand relationships is that lagged dependent variables have high explanatory power and large estimated coefficients which is hard to explain at a theoretical level marvin s goodfriend 1985 suggests that this may be due to the presence of serially correlated measurement errors in the independent variables the author demonstrates how consistent estimates of the short run demand function can be obtained even if the goodfriend hypothesis is accepted and also how the hypothesis might be tested application of the suggested test using the goldfeld 1973 data set leads to decisive rejection of the hypothesis copyright 1994 by ohio state university press

the role of money supply shocks in the short run demand for money abstract previous money demand models are either inconsistent with contemporaneous adjustment of the price level to expected changes in the nominal money supply or imply implausible interest rate fluctuations in response to innovations in nominal money we propose a shock absorber money demand model in which money supply shocks affect the synchronization of asset transactions and so engender a temporary increase or decrease in desired money holdings expected changes do not engender such fluctuations in real money inventories in simultaneous estimates for eight industrial countries the shock absorber model proved empirically superior

microfoundations and the demand for money the reader should note that i write this piece in a style that aims to be accessible to that much neglected representative agent the woman on the eurostar train hence unlike the man on the clapham omnibus i assume my intrepid traveller has reasonable knowledge of monetary economics and econometrics but not of the details of the demand for money space constraints force me to indulge in a certain amount of poetic licence but i hope this results in poetic justice there have been many wars fought on this particular battlefield some with almost religious zeal on the theoretical side of the debate we sometimes have the equivalent of religious fundamentalists be they muslims jews christians etc who would dismiss almost any evidence unless it were associated with a strong microtheoretic basis as laid down in the koran talmud or bible the empirical side encompasses agnostics atheists as well as born again econometricians pure theorists inhabit the sunlit uplands while applied economists and policymakers flounder in the muddy plain below occasionally gaining solace from their copy of zen and the art of motorcycle maintenance in general in economics we do not have the luxury of controlled experiments as is the case in the natural sciences what distinguishes good microfoundations from bad and how to weight priors and statistical evidence is subject to much dispute leamer i983 hendry et al i990 as in religion sometimes there is the occasional miracle proclaimed after a suitable interval a new saint may be declared and disciples flock to the new shrine later doubts may arise as to whether a miracle really did occur human behaviour is difficult to explain let alone predict so the search for the equivalent of the holy grail ark of the covenant etc is bound to be arduous in scholarly journals we generally read of the success of the demand for money like diplomats who are sent abroad to lie for the good of their country publication may require applied economists to be somewhat economical with the actualite lovell i983 leamer i983 in this article i want to be as honest as possible about our success and failures in this area the prior information an armchair economist would consider when thinking about the demand for money over the past 40 years in western industrialised countries which have experienced moderate inflation might

towards a loanable funds amended liquidity preference theory of the exchange rate and interest rate abstract the objective is to develop a unified theory of the exchange rate and interest rate using a loanable funds amended liquidity preference approach in order to provide a new perspective on many puzzling facts associated with the post bretton woods international economy it is shown that i a monetary expansion can initially raise the interest rate but depreciate the home currency ii real demand shocks can cause interest rate and exchange rate overshooting iii an infinite interest elasticity for capital flows cannot cause exchange rate overshooting if an extended marshall lerner condition holds iv the home currency can appreciate when the current account is negative if the extended marshall lerner condition is not satisfied and v changes in the disequilibrium regime will cause instability in the estimates of reduced form coefficients

are price equations really money demand equations on their heads it is often argued that the dependent variable in money demand functions is really the price level the money stock itself being exogenous a recent approach which stresses the theme is the buffer stock hypothesis in which money supply shocks explicitly appear in the demand for money function because prices and interest rates do not adjust rapidly enough to bring about short run equilibrium in the money market although this approach has been adopted by a number of authors it is not been subjected to much econometric testing in this paper we outline the economic and econometric issues involved in testing the exogenous money buffer stock hypothesis and subject it to a variety of tests using three different data sets none of our results supports the hypothesis fundamental restrictions are rejected at very high levels of significance and a reasonably good money demand equation is seen to be badly misspecified if interpreted as a price equation this abstract was borrowed from another version of this item

the buffer stock notion in monetary economics not the least of harry johnson s contributions to our discipline was the series of survey papers on aspects of monetary economics which he produced during the 1960s and 1970s it is no exaggeration to say that the way in which the literature of monetary economics is organised even now follows the design which johnson first set out in 1962 and built on in the subsequent decade nevertheless the subject has not stood still and one of the more interesting developments of the last few years has involved the introduction of what has been variously described as the disequilibrium money shock absorber or as i prefer to call it the buffer stock notion into monetary economics the development of this line of thought was getting underway before johnson s untimely death much of it indeed under the auspices of his own research programme at the lse even so this did not happen early enough for the relevant ideas to be put in their proper niche by johnson himself and the buffer stock approach is not yet fully integrated into the mainstream of monetary economics much of the relevant literature is empirical concerned with modelling particular aspects of the monetary experience of specific countries hence it is fragmented and contains few papers which attempt a coherent account of just what this approach is and how it relates to other approaches to monetary analysis although essays by goodhart 1982a b and judd and scadding 1982a contain important discussions of these issues to the best of my knowledge only jonson 1976a and knoester 1979a have devoted entire papers solely to this central issue and these are relatively inaccessible and hence less widely known than they deserve to be in this lecture i shall attempt to give a brief account of the essentials of this approach first i shall sketch out its microeconomic background and then i shall discuss those theoretical characteristics which differentiate it from the neo austrian analysis of robert e lucas jr and his associates as well as from the conventional keynesian approach to monetary economics last but by no means least i shall argue that it yields simple theoretical insights into important empirical and policy related issues which are troublesome for alternative approaches in short my tribute to harry