markov switching causality and the money output relationship the causal link between monetary variables and output is one of the most studied issues in macroeconomics one puzzle from this literature is that the results of causality tests appear to be sensitive with respect to the sample period that one considers as a way of overcoming this difficulty we propose a method for analysing granger causality which is based on a vector autoregressive model with time varying parameters we model parameter time variation so as to reflect changes in granger causality and assume that these changes are stochastic and governed by an unobservable markov chain when applied to us data our methodology allows us to reconcile previous puzzling differences in the outcome of conventional tests for money output causality

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

does money matter in canada evidence from a vector error correction model this paper investigates the statistical properties of a set of canadian and u s economic time series and uses the data to address the question of the importance of monetary variables in canadian business cycle fluctuations the individual time series are found to contain unit roots but the data reveal the existence of several economically meaningful cointegrating vectors a multivariate vector error correction model is estimated and canadian velocity which appears as an error correction term is significant in the canadian output equation this supports the contention that monetary variables have predictive content for real output copyright 1989 by mit press

environmental pollution hydropower energy consumption and economic growth evidence from g7 countries abstract the aim of this study is to examine the relationship among environmental pollution economic growth and hydropower energy consumption in the different regimes of the business cycles for g7 countries over the period of 1961 2013 we used markov switching vector autoregressive ms var and ms granger causality methods to achieve this goal since the traditional methods examine the causality by assuming all period in the same level unlike traditional methods these methods allow for determining the relationship and casual dynamics between variables in different regimes the causality results obtained for different regimes assisted to suggest policy recommendations for each regime individually according to analysis results it was found that there is bidirectional granger causality between carbon dioxide emissions and economic growth in the crisis regime and in the high growth regime while carbon dioxide emissions are granger cause of economic growth in all regimes in general we found evidence that hydropower energy consumption is granger cause of economic growth in general whereas there is a bidirectional causality for some g7 countries furthermore the results from these models indicate that in the first second and third regimes carbon dioxide emissions are granger cause of hydropower energy consumption and hydropower energy consumption is granger cause of carbon dioxide emissions for some g7 countries

direct effects of base money on aggregate demand theory and evidence abstract meltzer the transmission process working paper carnegie mellon university 1999a shows that real monetary base growth is a significant determinant of consumption growth in the us controlling for the short term real interest rate in this paper i show that the same property of base money holds for total output relative to trend or potential in both the us and the uk the standard optimizing is lm model cannot account for this result but i show that it can once the long term nominal interest rate is included in the money demand function because the long term real rate matters for aggregate demand the presence of the long term nominal rate in the money demand function increases the effect of nominal money stock changes on real aggregate demand when prices are sticky

money output and the expected real interest rate this paper tests the exclusion of lagged growth rates of money and output from regression equations with serially correlated disturbances for the expected real interest rate the authors empirical approach is an extension of the empirical strategies of eugene f fama 1975 and frederic s mishkin 1981 which invoke the orthogonality of the inflation forecast error to predetermined regressors under the maintained hypothesis of rational expectations they discuss the implications of their tests for simple real business cycle models copyright 1991 by mit press

an international study of tax effects on government bonds it is shown that coupon bonds alone are not sufficient to span time dated claims on ordinary income capital gains and non taxable wealth in an incomplete bond market where the pure dated claims are not spanned by existing bonds marginal rates of substitution between present consumption and pure dated claims on ordinary income capital gains income and non taxable wealth respectively can differ across bondholders however the relative pricing of coupon bonds in each of these countries is shown to be consistent with the tax status of the major non tax exempt holders of government debt

testing the term structure of interest rates using a stationary vector autoregression with regime switching abstract the expectations model of the term structure for us data on three and six month treasury bills for the period 1962 1 1987 3 is explored the analysis allows for the nonstationarity of the data and for unobserved stochastic switches of regime by estimating vars in the yield spread and the change in the three month rate which allow the time series processes to change between regimes in contrast to other results for the expectations model such as those of hamilton 1988 mankiw and miron 1986 and others we find that the data do not reject the model

direct effects of money on aggregate demand another look at the evidence now that a number of central banks are faced with short term nominal interest rates close to or at the zero lower bound there is a renewed interest in the long running debate about whether or not changes in the stock of money have direct effects in particular do changes in money have additional effects on aggregate demand outside of those induced by changes in short term nominal interest rates this article revisits and reinterprets the empirical evidence based on single equation regressions which is quite mixed with some results supporting and other results denying the existence of direct effects we use a structural model with no direct effects of money to show that the finding of positive and statistically significant coefficients on real money growth can be misleading the model generates data that when used to estimate analogues of the empirical regressions produce positive and statistically significant coefficients on real money growth similar to those often found when using actual data the

financial market variables do not predict real activity i introduction the past decade has seen an extensive empirical reassessment of the information content of financial market variables believed to be sensitive to monetary policy particularly provocative are papers suggesting that some interest rates and interest rate spreads contain more information about economic activity than monetary aggregates this paper reviews important methodological pitfalls in these studies we then show that none of the commonly employed indicators of monetary policy contain incremental information useful in forecasting real economic activity as measured by industrial production two conclusions are possible either monetary policy innovations have no significant real effects or we collectively have failed in our efforts to measure monetary policy the money income causality literature spawned by christopher sims in the 1970s has broadened in recent years to encompass a diverse set of measures of monetary policy more comprehensive and sophisticated empirical assessment strategies and a richer array of explanations for observed correlations between financial market variables and economic activity early contributors to this literature such as stock and watson 1989 friedman and kuttner 1992 and bernanke and blinder 1992 present evidence that particular interest rates and spreads not only dominate monetary aggregates as predictors of economic performance but are remarkably powerful predictors stock and watson 1989 and friedman and kuttner 1992 demonstrate that the spread between the interest rates on commercial paper and treasury bills is highly significant in explaining movements in real activity while bernanke and blinder 1992 made an equally convincing case for the federal funds rate these conclusions are qualified however in subsequent work both bernanke 1990 and stock and watson 1993 for example point out that the predictive power of the paper bill spread and interest rates more generally weakened during the second half of the 1980s and the early 1990s the results reported in these and related papers form the empirical core of the debate over the relative merits of various interest rates spreads and monetary aggregates as indicators of the stance of monetary policy subsequent empirical work has seen a shift from atheoretical to structural vector autoregressions strongin 1992 gordon and leeper 1994 and bernanke and mihov 1995 for example focus on more refined measures of monetary policy derived from explicit models of the reserve market and central bank operating procedures these papers address concerns that go beyond discriminating among variables on the basis of predictive power they grapple directly with the fundamentally difficult issue of identifying monetary policy shocks by positing and estimating structural models that take the form of identified vars the usefulness of these efforts as well as earlier efforts to measure monetary policy is in turn questioned by rudebusch 1996 who finds that the studies econometric results are fragile and at odds with other evidence on the nature of the fed s reaction function and monetary policy surprises the first part of our paper illustrates some of the methodological pitfalls common in the literature cited above and complements recent work by bernanke 1990 hess and porter 1993 thoma and gray 1995 rudebusch 1996 and emery 1996 we begin by demonstrating the advantages of rolling recursive regression techniques that directly and comprehensively address the question of sample sensitivity these techniques are used to illustrate the extreme sensitivity to sample period of the causality statistics and variance decompositions commonly used to assess the explanatory power of financial market variables indeed in the applications under review here such in sample measures of fit are sometimes heavily influenced by individual monthly observations

causality and correlations of output and nominal variables in a real business cycle model abstract a dynamic general equilibrium economy in which output is exogenous with respect to money is calibrated and simulated following a procedure commonly used in the real business cycle literature it is then confronted with key comovement patterns of output and nominal variables in post war u s time series data the model economy performs well in matching second moment patterns involving output money and price the model economy with its embedded reverse causation from output to money also provides the means for carrying out a probabilistic appraisal of the observed money to output granger causality in u s data repeated applications of the granger causality test to simulated data lead to the rinding that money causes output more often than expected

bond pricing in markets with taxes abstract two types of equilibrium models in bond markets with taxes exist the clientele model by schaefer and the litzenberger rolfo s model this paper reviews the two models in two frameworks utility arguments and no arbitrage arguments both show that schaefer s is more realistic

a guide to wavelets for economists abstract wavelet analysis although used extensively in disciplines such as signal processing engineering medical sciences physics and astronomy has not fully entered the economics discipline yet in this survey article wavelet analysis is introduced in an intuitive manner and the existing economics and finance literature that utilizes wavelets is surveyed and explored extensive examples of exploratory wavelet analysis are given most using canadian us and finnish industrial production data finally potential and possible future applications for wavelet analysis in economics are discussed

efficient tests of long run causation in trivariate var processes with a rolling window study of the money income relationship this paper develops a simple sequential multiple horizon non causation test strategy for trivariate var models with one auxiliary variable we apply the test strategy to a rolling window study of money supply and real income with the price of oil the unemployment rate and the spread between the treasury bill and commercial paper rates as auxiliary processes ours is the first study to control simultaneously for common stochastic trends sensi tivity of causality tests to chosen sample period null hypothesis over rejection sequential test size bounds and the possibility of causal delays evidence sug gests highly significant direct or indirect causality from m1 to real income in particular through the unemployment rate and m2 once we control for cointe gration

does money still matter for u s output abstract in this note we use an out of sample approach to investigate whether money growth granger causes output growth in the united states we find that after the great moderation the granger causal role of money appears to have vanished completely

more evidence on the money output relationship i introduction the empirical relationship between money and real output continues to produce conflicting evidence stock and watson 1989 using monthly u s data for the period 1960 85 report that while actual money growth m1 does not granger cause the growth of industrial production its detrended component does krol and ohanian 1990 internationalize stock and watson s study and find that both actual and detrended ml growth granger cause output growth in the u k but that neither series affects output growth in japan canada and germany friedman and kuttner 1992a 1992b 1993 question the role of money in explaining output behavior they report 1993 that even though the stock watson specification is used simply updating the sample through 1990 yields the result that detrended m1 growth no longer explains output growth friedman and kuttner also argue that the commercial paper rate or the spread between the three month treasury bill and the commercial paper rate provides a better gauge for output s reaction to monetary policy changes replacing the treasury bill rate used by stock and watson with the commercial paper rate or the spread friedman and kuttner find that m1 growth has no marginal explanatory power over output a feature of recent investigations of the money output link is the general use of a var specification based on the presumption that the series are difference stationary e g feldstein and stock 1994 several recent studies however have questioned this presumption due to the low power of unit root tests dejong et al 1992 dejong 1992 dejong and whiteman 1991a 1991b and rudebusch 1993 these studies suggest that it is difficult to distinguish between difference stationary as the null and trend stationary as the alternative hypothesis given the uncertainty about the existence of a unit root in economic time series we re examine the money output relation by specifically considering the affect of assuming that the series are trend stationary or difference stationary such an investigation is important to determine if permanent temporary changes in money and other series create permanent temporary shifts in real output for example if real output and money contain a unit root i e they are best represented by the difference stationary model permanent money shocks may produce permanent shifts in output put another way permanent money shocks may have a long run impact because they affect the stochastic trend component of output and thus change the output level for all future horizons on the other hand if output and other series are represented by a trend stationary model fluctuations around a trend level of these series are stationary mean reverting under this model a transitory money shock may only have a short run impact on output as it quickly returns to its trend level to analyze the sensitivity of results to different stationarity assumptions used we estimate two var systems one system uses the log levels of the variables along with a deterministic time trend the other uses the log difference of the series and excludes the trend term the first system represents the trend stationary specification and the second one represents the difference stationary specification there is some evidence that the money output link may be sensitive to the presence of a deterministic trend term e g eichenbaum and singleton 1986 stock and watson 1989 even so our study provides a direct comparison based on identical data sets of the effects that the two different stationarity specifications have on the money output results while testing the robustness of the money output connection is our main focus we also provide some different perspectives on the debate one is to use both long and short term data sets most studies limit the analysis to quarterly data from the post 1960 era we study the link between money interest rates and output using annual data over the extended period 1915 1993

arbitrage clientele effects and the term structure of interest rates this paper derives a new and intuitive estimation procedure for the term structure under potential tax arbitrage no a priori assumptions regarding the equality of the prices and present values of bonds are made the data are employed to determine whether this equality holds and an appropriate estimator is thereby endogenously derived the suggested estimator is based on the optimizing behavior of an investor in a market with frictions and emerges directly from the solution of the dual of the no arbitrage optimization problem in addition the proposed estimator benefits from being both theoretically sound and straightforward to apply

cyclical and causal relations between real wages and employment in the eu this paper analyses and compares the joint behaviour of real wages and employment over the business cycle in the european union eu economies using both annual and quarterly data since 1960 further investigation of the cointegrating properties and the existence of causal effects in the real wage employment relation is undertaken by employing appropriate var models the evidence suggests weak procyclical or acyclic behaviour of real wages relative to cyclical employment in the quarterly data and stronger procyclicality in the annual data thus confirming the dunlop tarshis result for the majority of the eu economies with a few exceptions no cointegrating relations were detected while the granger causality tests suggest either weak or lack of unidirectional causality finally the sensitivity analysis showed that the filtering method has not much influence on the results but the choice of deflator may overturn them in certain cases

does money matter in shaping domestic business cycles an international investigation we study the contribution of money to business cycle uctuations in the us the uk japan and the euro area using a small scale structural monetary business cycle model constrained likelihood based estimates of the parameters are provided and time instabilities analyzed real balances are statistically important for output and in ation uctuations their contribution changes over time models giving money no role provide a distorted representation of the sources of cyclical uctuations of the transmission of shocks and of the events of the last 40 years

reconsidering the role of money for output prices and interest rates abstract new keynesian models of monetary policy downplay the role of monetary aggregates in the sense that the level of output prices and interest rates can be determined without knowledge of the quantity of money this paper evaluates the empirical validity of this prediction by studying the effects of shocks to monetary aggregates using a vector autoregression var shocks to monetary aggregates are identified by the restrictions suggested by new keynesian monetary models contrary to the theoretical predictions shocks to broad monetary aggregates have substantial and persistent effects on output prices and interest rates

a two country model of stochastic output with changes in regime abstract this paper evaluates the transmission of business cycles between countries and presents evidence that world wide shocks dominate any transmission of business cycles i examine industrial production and look at the relationships of the united states with canada germany and the united kingdom in the process i present a specialized markov switching time series model and evaluate it relative to other more familiar stochastic models i show that for the data sets considered markov switching models have much better goodness of fit but larger forecast variance relative to arma or var models

solution and estimation of re macromodels with optimal policy macro models of monetary policy typically involve forward looking behavior except in rare circumstances we have to apply some numerical method to find the optimal policy and the rational expectations equilibrium this paper summarizes a few useful methods and shows how they can be combined with a kalman filter to estimate the deep model parameters with maximum likelihood simulations of a macro model with staggered price setting interest rate elastic output and optimal monetary policy illustrate the properties of this estimation approach

tax effects in term structure estimation this study is a refinement and an extension of an earlier study by mcculloch of tax effects in the regression equation for term structure estimation this study includes tests for tax effects and heteroskedasticity a reconsideration of the need for an instrumental variable and a search for the capital gains tax rate in addition to the ordinary income tax rate there are two major findings 1 statistically significant taxinduced bias in the non tax adjusted equation and 2 evidence that the capital gains tax is misspecified in the tax adjusted equation it is well known e g see 4 2 pp 727 30 and 25 that the yield curve is an imperfect surrogate for the term structure of interest rates and various methods have been developed to estimate the term structure directly by regressing prices on payments in a sample of default free securities 1 since investors are concerned with the after tax payments on securities it is desirable to incorporate tax effects in term structure estimation mcculloch 22 and schaefer 26 29 have employed different approaches to the tax effect problem mcculloch employed the regression approach and searched for a single tax rate

breaking trends and the money output correlation this paper examines the impact on the money output correla tion of a univariate specification that allows time series to be characterized as stationary around a broken trend function though pretesting suggests that u s real output industrial production can be described as broken trend stationary this result has only limited impact on the money output correlation before 1985 there is a strong granger causal relationship between money and broken detrended output but not first differenced output even when different short term interest rates are used as regres sors however after 1985 this relationship weakens significantly whether or not one determines that output has a unit root

money market mutual fund maturity and interest rates the average maturity of money market mutual funds ranged from twenty nine to fifty three days during 1982 through 1990 according to the popular press changes in this time series provide interest rate forecasts the hypothesis is that fund managers lengthen their maturities when interest rates will be falling while the maturities are shortened when rate increases are imminent granger causality tests reject this hypothesis however there is a causal relation in the opposite direction interest rates granger cause average fund maturity indicating that on average fund managers respond to past rate changes copyright 1992 by ohio state university press

on money and output is money redundant abstract there is an emerging consensus that money can be largely ignored in making monetary policy decisions rudebusch and svensson 1999 policy rules and inflation targeting in taylor j b ed monetary policy rules university of chicago press chicago 203 246 2002 eurosystem monetary targeting lessons from us data european economic review 46 417 442 provide some empirical support for this view we reconsider the role of money and find that money is not redundant more specifically there is a significant statistical relationship between lagged values of money and the output gap even when lagged values of real interest rates and lagged values of the output gap are accounted for we also find that inside and outside money provide significant information in predicting movements in the output gap

money output granger causality revisited an empirical analysis of eu countries in this paper the evidence collected in the large literature on testing for granger causality from money to output is revisited using a broad data base of 14 eu countries plus canada the us and japan and quarterly data from the mid 1960s to mid 1990s a number of hypotheses from this literature is evaluated it is found that very few general conclusions can be sustained for instance in most countries it is not the case that the use of data in levels creates a bias in favour of finding granger causality effects of money on output compared to using differences neither does the significance of money lags decline when increasing the number of variables included in the model what appears to be robust though is that allowing for asymmetries clearly increases the likelihood of finding significant causality effects based on the granger causality test results a number of country groups are obtained using cluster analysis which are characterized by a similarly behaviour with respect to the money output

inflation tight money and household saving behavior finnish evidence the hypothesis put forward by deaton in particular that real income and price innovations have a positive effect on the savings ratio is tested as points of reference two models are used in which consumers uncertainty about relative prices in a cross section and an intertemporal sense respectively plays a major role in completing the models a tight money variable is also introduced as a factor which affects the savings ratio evidence from finnish quarterly data for the period 1966 1979 provides strong support for this hypothesis results are relatively robust with respect to alternative proxies for real income and price innovations as well as to alternative specifications of the tight money variable

after tax term structures of real interest rates inferences from the uk linked and non linked gilt markets abstract this study estimates the after tax term structure of real interest rates using the prices of uk linked and non linked gilts over the period from 25 january 1986 until 25 october 1993 the impact of differential taxation and the existence of noise in observed market prices is found to produce a significant impact on the parameter estimation of term structure models when compared to methods such as brown and schaefer brown r schaefer s 1994 journal of financial economics 35 1 42 that did not two major observations can be made regarding the estimates for spot real interest rates firstly the volatility of the short term rate is much lower than that found by brown and schaefer 1994 which provides a better fit with the predictions of the cir single factor model for interest rates secondly consistent with rumsey rumsey j 1993 an impact of the assumptions about taxes on the estimation of the properties of interest rates working paper there appears to be some evidence to suggest that single factor interest rate models produce a better fit to interest rates on an after tax basis than on a before tax basis

an alternative explanation of the price puzzle abstract this paper proposes an explanation for the frequent appearance of a price puzzle in vars designed for monetary policy analysis it assumes that the data are generated by a model in which output and output gap are not equivalent while an econometrician follows the common practice of including only output in the var the omission of the output gap is shown to spuriously produce a price puzzle and several other incorrect conclusions in a class of commonly used models this can happen even if the model admits a triangular identification and if the forecasts produced by the misspecified var are optimal when the model is tested on us data all predictions are supported a commodity price index is not needed to solve the puzzle

money s role in the monetary business cycle a small structural model of the monetary business cycle implies that real money balances enter into a correctly specified forward looking is curve if and only if they enter into a correctly specified forward looking phillips curve the model also implies that empirical measures of real balances must be adjusted for shifts in money demand to accurately isolate and quantify the dynamic effects of money on output and inflation maximum likelihood estimates of the modelos parameters take both these considerations into account but still suggest that money plays a minimal role in the monetary business cycle

eurosystem monetary targeting lessons from u s data abstract using a small empirical model of inflation output and money estimated on u s data we compare the relative performance of monetary targeting and inflation targeting the results show monetary targeting to be quite inefficient yielding both higher inflation and output variability this is true even with a nonstochastic money demand formulation our results are also robust to using a p model of inflation therefore in these popular frameworks there is no support for the prominent role given to money growth in the eurosystem s monetary policy strategy

the causal link between energy and output growth evidence from markov switching granger causality abstract in this paper we empirically investigate the causal link between energy consumption and economic growth employing a markov switching granger causality analysis we carry out our investigation using annual u s real gdp total final energy consumption and total primary energy consumption data which cover the period between 1968 and 2010 we find that there are significant changes in the causal relation between energy consumption and economic growth over the sample period under investigation our results show that total final energy consumption and total primary energy consumption have significant predictive content for real economic activity in the u s economy furthermore the causality running from energy consumption to output growth seems to be strongly apparent particularly during the periods of economic downturn and energy crisis we also document that output growth has predictive power in explaining total energy consumption furthermore the power of output growth in predicting total energy consumption is found to diminish after the mid of 1980s

money and output new evidence based on wavelet coherence abstract we reassess the relationship between money and output using quarterly data from the us economy we use several tools based on wavelets the wavelet power transform and the wavelet coherence with which we analyze this relationship in both time and frequency we find evidence of a weaker relationship within the great moderation as well as a stronger relationship during the great recession

does money matter for the identification of monetary policy shocks a dsge perspective this paper investigates how the identification assumptions of monetary policy shocks modify the inference in a standard dsge model considering svar models in which either the interest rate is predetermined for money or money and the interest rate are simultaneously determined two dsge models are estimated by minimum distance estimation the estimation results reveal that real balance effects are necessary to replicate the high persistence implied by the simultaneity assumption in addition the estimated monetary policy rule is sensitive to the identification scheme this suggests that the way money is introduced in the identification scheme is not neutral for the estimation of dsge models c 2010 elsevier b v all rights reserved

do oil spot and futures prices move together abstract this paper investigates the time varying correlation and the causal relationship between crude oil spot and futures prices using a newly developed approach wavelet coherency analysis in time frequency domain first we find evidence of a long run cointegration relationship between oil spot and futures prices moreover the short run causality is more significant in shorter maturity pairs versus longer maturity pairs in the vector error correction framework second the results from wavelet coherency analysis show significant dynamic correlations between variables in the time frequency domain third the illustration of the phase difference series around zero suggests that spot and futures prices contribute to the dynamics of the long run equilibrium fourth and finally we provide reasons for the structural changes in oil prices and also recommend investment strategies corresponding to risk diversification future studies focusing on the behavior of oil prices should consider the characteristics of the time frequency space and lead lag dynamic relationships

money in an estimated business cycle model of the euro area this article examines the role of money in a small scale dynamic general equilibrium model of the euro zone estimated by maximum likelihood the model allows for both intertemporal and intratemporal non separability in preferences we find first that real balances do not affect the marginal utility of consumption second money demand shocks mainly help to forecast real balances while real shocks explain the bulk of price output and interest rates fluctuations third the calculation of the natural rate of interest reveals that the evolution of the interest rate is mostly accounted for by the real sources of fluctuations

why inflation rose and fell policy makers beliefs and u s postwar stabilization policy this paper provides an explanation for the run up of u s inflation in the 1960s and 1970s and the sharp disinflation in the early 1980s which standard macroeconomic models have difficulties in addressing i present a model in which rational policymakers learn about the behavior of the economy in real time and set stabilization policy optimally conditional on their current beliefs the steady state associated with the self confirming equilibrium of the model is characterized by low inflation however prolonged episodes of high inflation ending with rapid disinflations can occur when policymakers underestimate both the natural rate of unemployment and the persistence of inflation in the phillips curve i estimate the model using likelihood methods the estimation results show that the model accounts remarkably well for the evolution of policymakers beliefs stabilization policy and the postwar behavior of inflation and unemployment in the united states

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

the role of real and monetary shocks in explaining business cycle fluctuations the essay brings empirical evidence to bear on the ability of real and monetary shocks to explain busines cycles using vector autoregressive techniques it is found that both real and monetary shoc

is there a role for monetary aggregates in the conduct of monetary policy abstract we examine the potential policy role of monetary aggregates by attempting to use them as effectively as possible in the analysis of empirical relationships we focus on their role as information variables since any more ambitious use such as in a policy rule would presuppose some information content in the aggregates our results show that in the united states since 1979 the monetary aggregates fall considerably short of those requirements and results with german m3 are hardly more favorable we also investigate whether empirical relationships are not reflective of information relationships because of the use of these variables in countercyclical policy the results are not consistent with that interpretation

was the recent downturn in us real gdp predictable this article uses a small set of variables real gdp the inflation rate and the short term interest rate and a rich set of models atheoretical time series and theoretical structural linear and nonlinear as well as classical and bayesian models to consider whether we could have predicted the recent downturn of the us real gdp comparing the performance of the models to the benchmark random walk model by root mean square errors the two structural theoretical models especially the nonlinear model perform well on average across all forecast horizons in our ex post out of sample forecasts although at specific forecast horizons certain nonlinear atheoretical models perform the best the nonlinear theoretical model also dominates in our ex ante out of sample forecast of the great recession suggesting that developing forward looking microfounded nonlinear dynamic stochastic general equilibrium models of the economy may prove crucial in forecasting turning points

money income prices and interest rates including data from the 1980s sharply weakens the postwar time series evidence indicating significant relationships between money however defined and nominal income or between money and either real income or prices separately focusing on data from 1970 onward destroys this evidence altogether evidence indicating cointegration of real income and real money balances with due allowance for the effect of interest rates also deteriorates when the sample extends through the 1980s a positive finding is that the spread between the commercial paper rate and the treasury bill rate consistently contains highly significant information about future movements in real income copyright 1992 by american economic association

the conventional treatment of seasonality in business cycle analysis does it create distortions abstract no so says one model that is broadly consistent with postwar u s seasonal and business cycle data

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

international evidence on the historical properties of business cycles we contrast properties of real quantities with those of price levels and stocks of money for ten countries over the last century although the magnitude of output fluctuations has varied across countries and periods relations among real quantities have been remarkably uniform properties of price levels however exhibit striking differences between periods inflation rates are more persistent after world war ii than before and price level fluctuations are typically procyclical before world war ii and countercyclical afterward fluctuations in money are less highly correlated with output in the postwar period but are no more persistent than in earlier periods jel e32 e31

money does granger cause output in the bivariate money output relation abstract a bivariate granger causality test on money and output finds statistically significant causality when data are measured in log levels but not when they are measured in first differences of the logs bootstrap simulation experiments indicate that most probably the first difference results reflect lack of power whereas the level results reflect granger causality that is actually in the data the reason for the lack of power in the first difference f statistic is that first differencing the data appears to entail a specification error by showing that money does granger cause output in the bivariate relation we remove a potential embarrassment for models that assign an important role to money in business fluctuations

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

banking crises and nonlinear linkages between credit and output in this article we analyse the asymmetric causality linkages between credit growth and output growth during banking crises we employ a recently developed procedure based on a bivariate markov switching model to test the hypotheses of independence causality and asymmetric causality between credit and output using a sample of 103 banking crises around the world we find that neither credit nor output takes precedence as a variable in calm and crisis periods although there is evidence of instantaneous interdependence between the banking and real sector during crises the results suggest that shocks propagate mostly within a year between the banking sector and the real economy the linear link between credit growth and output growth is also regime dependent

energy consumption and economic growth in the united states abstractwe study the relationship between energy consumption and real gdp in the usa using a multivariate time varying model 1973q1 2014q1 we show that the combination of disaggregation into specific fuels and time variation gives more nuanced results than the alternatives for the usa specifically we find that the granger causal relationship between total energy and real us gdp is bi directional through much of the 1990s but unidirectional running from real us gdp to energy consumption in the 2000s as for each fuel similar patterns of change were observed in the causal relationship between coal consumption and real us gdp oil consumption largely shows a bi directional relationship between consumption and us gdp especially after 2009 and natural gas consumption shows a brief period in the early to mid 2000s where us gdp predicts energy consumption but primarily shows that natural gas consumption and economic growth are independent

the dynamic effects of forward guidance shocks we examine the macroeconomic effects of forward guidance shocks at the zero lower bound empirically we identify forward guidance shocks using unexpected changes in futures contracts around moneta

a comparison of yield curve estimation techniques using uk data abstract i compare different methods of estimating the term structure of interest rates on a daily uk treasury bill and gilt data that spans the period from january 1995 to january 1999 in sample and out of sample statistics reveal the superior pricing ability of certain methods characterised by an exponential functional form in addition to these standard goodness of fit statistics model performance is judged in terms of two trading strategies based on model residuals both strategies reveal that parsimonious representations of the term structure perform better than their spline counterparts characterised by a linear functional form this is valid even when abnormal returns are adjusted for market movements linear splines overfit the data and are likely to give misleading results

tax arbitrage and the existence of equilibrium prices for financial assets in models where both investors and securities are subject to differential taxation there may be no set of prices that rule out infinite gains to trade or tax arbitrage this paper characterizes the joint restrictions on financial asset returns and investors tax schedules that preclude tax arbitrage in the absence of short sale constraints the authors show that if there exists any configuration of marginal tax rates on investors tax schedules that rule out infinite gains to trade then no tax arbitrage prices will exist they also show that the existence of no tax arbitrage prices ensures the existence of equilibrium prices the effects of differential taxation on the equilibrium prices of financial assets have attracted much attention from financial economists in recent years otherwise identical securities that contribute to taxable income to different degrees will in general be valued differently by taxable investors as a result tax considerations have been useful in helping explain the effect of dividend yield on stock returns the effect of coupon levels and term to maturity on bond prices 2 the timing of investors portfolio transactions 3 and the observed capital structures of firms 4 while a rich set of observed behaviors can be better understood by reference to differential taxation there are well known difflculties in dealing with taxes in a general equilibrium setting to clear markets relative prices must reflect the marginal rates of substitution of all agents simultaneously when tax rates differ across investors however this condition can be impossible to achieve to illustrate consider a world of perfect certainty with two assets a tax exempt municipal bond and a taxable government bond to equate marginal rates of substitution the rate of return on the government bond rg must equal that on the municipal rm grossed up by one minus the investor s marginal tax rate ti that is rg rm 1 ti if there are investors in more than one tax bracket this condition will obviously be impossible to satisfy for all of them simultaneously both authors from graduate school of industrial administration carnegie mellon university we wish to thank scott richard steven spear and an anonymous referee for helping us sort through the issues considered here seminar participants at columbia wharton the johnson symposium on asset pricing at the university of wisconsin madison and the 1986 western finance association meeting also provided valuable comments we are also grateful for the financial support provided by the center for public policy research carnegie mellon university all errors are our own responsibility

the robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the european central bank abstract this paper examines the implications of recent research on monetary policy rules for practical monetary policy making with special emphasis on strategies for setting interest rates by the european central bank ecb the paper draws on recent research and new simulations of a large open economy model to assess the efficiency of a simple benchmark rule in comparison with other proposed rules further it stresses new results on the robustness of monetary policy rules in which each rule that is optimal or good according to one model or researcher is tested for robustness by other researchers using different models because of the large increase in the number of economists focussing on econometric evaluation of monetary policy rules for the interest rate instrument and because of the parallel increase in the variety of models being developed for this purpose much more evidence is becoming available on the robustness of simple monetary policy rules for the interest rate than ever before

the future of monetary aggregates in monetary policy analysis this paper considers the role of monetary aggregates in modern macroeconomic models of the new keynesian type the focus is on possible developments of these models that are suggested by the monetarist literature and that in addition seem justified empirically both the relation between money and inflation and between money and aggregate demand are considered regarding the first relation it is argued that both the mean and the dynamics of inflation in present day models are governed by money growth this relationship arises from a conventional aggregate demand channel claims that an emphasis on the link between monetary aggregates and inflation requires a direct channel connecting money and inflation are wide of the mark the relevance of money for aggregate demand in turn lies not via real balance effects or any other justification for money in the is equation but on money s ability to serve as a proxy for the various substitution effects of monetary policy that exist when many asset prices matter for aggregate demand this role for monetary aggregates which is supported by empirical evidence enhances the value of money to monetary policy

why money growth determines inflation in the long run answering the woodford critique woodford 2007 argues that it is not appropriate to regard inflation in the steady state of new keynesian models as determined by steady state money growth woodford instead argues that the intercept term in the monetary authority s interest rate policy rule determines steady state inflation in this paper i offer an alternative interpretation of steady state behavior according to which it is appropriate to regard steady state inflation as determined by steady state money growth the argument relies on traditional interpretations of the central bank s power in the long run and appeals to model properties that are common to textbook and new keynesian analysis according to this argument the only way the central bank can control interest rates in the long run is via affecting inflation and its only means available for determining inflation is by determining the money growth rate

structural vector autoregressions with smooth transition in variances abstract in structural vector autoregressive analysis identifying the shocks of interest via heteroskedasticity has become a standard tool unfortunately the approaches currently used for modeling heteroskedasticity all have drawbacks for instance assuming known dates for variance changes is often unrealistic while more flexible models based on garch or markov switching residuals are difficult to handle from a statistical and computational point of view therefore we propose a model based on a smooth change in variance that is flexible as well as relatively easy to estimate and illustrate its use by analysis of the interaction between monetary policy and the stock market based on a five dimensional system of u s variables for the benchmark setup it is found that previously used conventional identification schemes in this context are rejected by the data if heteroskedasticity is allowed for we also illustrate the implications of using different transition variables and varying the sample period

the impact of commodity price shocks in the presence of a trading relationship a gvar analysis of the nafta this paper investigates the commodity price shocks and monetary shocks in the region covered by the north american free trade agreement nafta using a global vector autoregression gvar approach our focus is on commodity price shocks which impact both directly through the aggregate price level as well as through monetary policy related aggregates such as short term interest rates we first contrast the response of the real economy to commodity price shocks in two periods 1983q2 2015q2 and 1994q1 2015q2 where the beginning of the second sample coincides with a statistically identified structural break as well as the introduction of nafta the results indicate that the commodity price shocks such as for oil and metal have a bigger impact on the real economy after nafta came into force withmetal prices having a larger quantitative impact on output in comparison to oil prices next we investigatewhether these changes have different implications for the impact of domestic monetary shocks in the three countries we find that while the post nafta period is characterized by a stronger domestic monetary policy response to commodity price shocks the response to monetary shocks per se varies in the two time periods in particular u s monetary policy as reflected in shocks to short term interest rates has a weaker influence in the post nafta period overall the influence of global commodity price shocks in the region relative to domestic monetary shocks is greater in the post nafta period

larger crises cost more impact of banking sector instability on output growth we propose a method for calculating the macroeconomic costs of banking crises that controls for the downward impact of recessions on banking activity in contrast to earlier research we estimate the cost of crises based on the size of banking crises the extent of a crisis is measured using banking sector aggregates the results based on our method and data from over 100 banking crises suggest that the size of a crisis matters for economic growth lower credit deposit and money growth during crises cause gdp growth to decline

asymmetric effects of positive and negative money supply shocks this paper examines whether positive and negative money supply shocks have symmetric effects on output the results are consistent with the hypothesis that positive money supply shocks do not have an effect on output while negative money supply shocks do have an effect on output this finding is independent of whether or not expected money is assumed to affect output the results reported in this paper imply that the fed could increase the growth rate of real output by reducing the standard deviation of unexpected changes in the money supply

maintaining low inflation money interest rates and policy stance abstract this paper presents a systematic empirical relationship between money and subsequent prices and output using us euro area and swiss data since the 1960 1970s monetary developments unlike interest rate stance measures are shown to provide qualitative and quantitative information on subsequent inflation the usefulness of monetary analysis is contrasted to weaknesses in modeling monetary policy and inflation with respectively short term interest rates and real activity measures the analysis sheds light on the recent change in inflation volatility and persistence as well as on the phillips curve flattening and reveals drawbacks in pursuing a low inflation target without considering monetary aggregates

stylized facts and regime changes are prices procyclical we investigate empirically the stability of the correlation between output growth and inflation using a technique that allows for changes in regime we look at recent quarterly data for the g4 and at historical data for the u s and u k we find evidence of changes both in means and variances in both sources of data in the quarterly data we find that the covariance between output growth and inflation is typically negative in the historical data we find as suggested in previous studies that inflation was procyclical especially in the inter war years but has been countercyclical in the post war period

monetary aggregates and liquidity in a neo wicksellian framework woodford 2003 describes a popular class of neo wicksellian models in which monetary policy is characterized by an interest rate rule and the money market and financial institutions are typically not even modeled critics contend that these models are incomplete and unsuitable for monetary policy evaluation our banks and bonds model starts with a standard neo wicksellian model and then adds banks and a role for bonds in the liquidity management of households and banks the banks and bonds model gives a more complete description of the economy but the neo wicksellian model has the virtue of simplicity our purpose here is to see if the neo wicksellian model gives a reasonably accurate account of macroeconomic behavior in the more complete banks and bonds model we do this by comparing the models second moments variance decompositions and impulse response functions we also study the role of monetary aggregates in predicting inflation in the two models

time frequency characterization of the u s financial cycle despite an increase in research motivated by the global financial crisis of 2007 08 empirical studies on the financial cycle are rare compared to those on the business cycle this paper adds some new evidence to this scarce literature by using a different empirical methodology wavelet analysis to extract financial cycles from the data our results confirm that the u s financial cycle is much longer than the business cycle but we do not find strong evidence supporting the view that the financial cycle has lengthened during the great moderation period

economic growth and energy consumption causal nexus viewed through a bootstrap rolling window one puzzling results in the literature on energy consumption economic growth causality is the variability of results particularly across sample periods sample sizes and model specification in order overcome these issues this paper analyzes the causal links between energy consumption and economic growth for g 7 countries using bootstrap granger non causality tests with fixed size rolling subsamples the data used includes annual total energy consumption and real gross domestic product gdp series from 1960 to 2006 for g 7 countries excluding germany for which the sample period starts from 1971 using the full sample bootstrap granger causality test we find that there is predictive power from energy consumption to economic growth only for canada however parameter instability tests show that none of the estimated models have constant parameters and hence the full sample results are not reliable analogous to the full sample results the results obtained from the bootstrap rolling window estimation indicate no consistent causal links between energy consumption and economic growth we however find that causal links are present between the series in various subsamples furthermore these subsample periods correspond to significant economic events indicating that the findings are not statistical artefacts but correspond to real economic changes our results encompass previous findings and offer an explanation to varying findings

household saving out of different types of income revisited the purpose of this paper is to test for two hypotheses about household consumption and saving behaviour namely the substitution hypothesis according to which changes in corporate retained earningshave an offsetting effect on household savingand the hypothesis that consumption and saving out of different types of income vary cross country evidence from 13 oecd countries over the period 1963 80 lies very well in accordance with both of these hypotheses moreover results are robust to alternative specifications of consumption function to additional variables and to estimation methods

does higher government debt link to higher social expenditure new method new evidence abstractscholars believe that higher social expenditures are usually linked with higher government debts whereas higher debts reduce social expenditures however it is reasonable to speculate that higher government debt may contribute to higher social spending while fiscal deficits occur during a recession which commonly creates greater demand for social expenditure for a deeper investigation this paper revisits the dynamic relationship between social spending and public debts in the time frequency domain using the novel wavelet coherency analysis as well as the phase difference technique to derive the co moved and causal relationships between social spending and public debts in 13 oecd countries the evidence identifies a dynamic relationship between variables while higher social expenditures increase government debts the shocks from government debts to social expenditures are conversely uncertain we discover that higher government debt does reduce social expenditures but it may be linked to h

another look at long run money demand abstract this paper investigates the long run demand for m1 in the postwar united states previous studies based on data ending in the late 1980s are inconclusive about the parameters of postwar money demand this paper obtains precise estimates of these parameters by extending the data through 1996 the income elasticity of money demand is approximately 0 5 and the interest semi elasticity is approximately 0 05 these parameters are significantly smaller in absolute value than the corresponding parameters for the prewar period a caveat is that the analysis assumes there is no trend in money demand resulting from technological change

tax induced clientele effects in the market for british government securities abstract this paper develops a new methods for measuring tax effects in bond markets and presents empirical results for british government securities the basic idea is to construct a least cost portfolio which for investors in a given tax bracket dominates a given bond a portfolio is said to dominate a bond if it provides cash flows which are at least as great in every period and has a lower price in effect our method calculates an upper bound on the value of a bond to investors in a given tax bracket the results demonstrate i the existence of clientele effects and ii the absence of an effective tax rate

an optimizing is lm specification for monetary policy and business cycle analysis we ask whether relations of the is lm type can sensibly be used for the aggregate demand portion of a dynamic optimizing general equilibrium model intended for analysis of issues regarding monetary policy and cyclical fluctuations the main result is that only one change the addition of a term regarding expected future income is needed to make the is function match a fully optimizing model whereas no changes are needed for the lm function this modification leads to a dynamic forward looking model of aggregate demand that is tractable and usable with a wide variety of aggregate supply specifications theoretical applications concerning price level determinacy and gradual price adjustment are included

money and output viewed through a rolling window abstract we examine the extent to which fluctuations in the money stock anticipate or granger cause fluctuations in real output using a variety of rolling window and increasing window estimation techniques various models are considered using simple sum as well as divisia measures of m 1 and m 2 income prices and both the t bill rate and the commercial paper rate findings indicate that the relation between income money prices and interest rates is stable as long as sufficient data are used and that there is cointegration among the variables considered although cointegration spaces become very difficult to estimate precisely when smaller windows of data are used further both m 1 and m 2 are shown to be important predictors of income for the entire period from 1960 2 1996 3 based on modified versions of what we term the most damaging specifications from friedman and kuttner 1993 and thoma 1994 our new evidence is based in part on a rather novel model selection approach to examining the relationship between money and income 1998 elsevier science b v all rights reserved

money real interest rates and output a reinterpretation of postwar u s data this paper reexamines both monthly and quarterly u s postwar data to investigate if the observed comovements between money real interestrates prices and output are compatible with the money real interest output link suggested by existing monetary theories of output which include both keynesian and equilibrium models the major empirical findings are these 1 in both monthly and quarterly data we cannot reject the hypothesis that the ex ante real rate is exogenous or granger causally prior in the context of a four variable system which contains money prices nominal interest rates and industrial production 2 in quarterly data there is significantly more information con tained in either the levels of expected inflation or the innovationof this variable for predicting future output given current and lagged output than in any other variable examined money actualinflation nominal interest rates or ex ante real rates the effect of an inflation innovation on future output is unambiguously negative the first result casts strong doubt on the empirical importance of existing monetary theories of output which imply that money should have a causal role on the ex ante real rates the second result would appear incompatible with most demand driven models of output in light of these results we propose an alternative structural model which can account for the major dynamic interactions among the variables this model has two central features i output is unaffected by money supply and ii the money supply process is motivated by short run price stability this abstract was borrowed from another version of this item

saving and inflation some international evidence abstract this note contains empirical results for the disequilibrium saving function specification in which uncertainty about relative prices in a cross section sense plays a major role quarterly time series evidence from several oecd countries over the period 1967 ii 1980 iii lies in striking conformity with the view suggested particularly by deaton that there is a positive relationship between unanticipated inflation and the saving ratio

estimating the evolution of money s role in the u s monetary business cycle we assess money s role in the post wwii u s business cycle by employing both fixed coefficient and rolling window bayesian estimations of a structural model of the business cycle with money our empirical evidence favors a specification with drifting parameters for money consumption nonseparability and the federal reserve s reaction to nominal money growth the role of money is estimated to have been important during the 1970s and declined afterward the omission of money produces severely distorted impulse response functions relative to the model with money money is found to be important in replicating the u s output volatility during the great inflation

discussion of putting m back in monetary policy by eric leeper and jennifer roush the european central bank assigns a prominent role for money and monetary analysis in its monetary policy strategy it will therefore not come as a surprise that i am very sympathetic to the general theme of eric leeper and jennifer roush s paper indeed let us put m back in monetary policy in this paper leeper and roush 2003 this issue of jmcb show quite convincingly that explicitly allowing for a short term response of the policy controlled interest rate to money m2 rather than to contemporaneous output and prices as in the taylor rule helps identify the effects of exogenous monetary policy shocks in a monthly var it reduces the price and liquidity puzzle which is so often incurred in this type of exercise it increases the size and the persistence of the output and price effects of a monetary policy shock it improves the estimation of the short run money market supply and demand schedules and importantly these findings appear to be robust across various sub samples possibly with the exception of the most recent sub sample the bottom line is therefore let us put m back in the monetary policy reaction while i will not disagree with this conclusion and i will provide some additional evidence for the euro area in section 3 of this discussion it is worth asking why the estimated effects of policy shocks with a contemporaneous reaction to money are more plausible than those estimated in vars without such a role for money first is the price puzzle really a puzzle there is no full consensus about this in particular one can construct models in which contractionary monetary policy shocks have an initial positive effect on prices due to an interest rate cost channel e g christiano

what is wrong with taylor rules using judgment in monetary policy through targeting rules it is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule e ither ageneral targeting rule explicit objectives for monetary policy or a specific targeting rule a criterion for the forecasts of the target variables to be fulfilled essentially the equality of the marginal rates of transformation and substitution between the target variables targeting rules allow the use of judgment and extramodel information are more robust and easier to verify than optimal instrument rules and they can nevertheless bring the economy close to the socially optimal equilibrium

functional monetary aggregates monetary policy and business cycles abstract in this paper we take the economic approach to monetary aggregation in the context of highly disaggregated demand systems encompassing the full range of monetary assets in the united states we estimate the effectively globally regular minflex laurent ml and normalized quadratic nq flexible functional forms we produce the ml and nq functional monetary aggregates consistent with neoclassical microeconomic theory also addressing the issue of optimal monetary aggregation we highlight the influence of measurement on statistical inference by investigating whether the ml and nq functional monetary aggregates are of importance in resolving paradoxes associated with the measurement of money in doing so we also provide a comparison between the functional monetary aggregates and the fed s broad sum m2 aggregate and the center for financial stability broad divisia m3 and divisia m4 aggregates our detailed statistical analysis favors the functional monetary aggregates

immunization in markets with tax clientele effects evidence from the canadian market empirical immunization studies have considered the efficacy of immunization strategies in which the durations of assets and of liabilities are equated against a strategy involving maturity matching however all these studies have ignored tax effects in the presence of tax clientele effects immunization requires that the portfolio consists only of bonds that are correctly priced for a particular clientele testing for these effects therefore requires the identification of the correctly priced bonds for the investors in the clientele however since bond prices contain noise determining these bonds is still an unresolved problem consequently an empirical test of the magnitude of the error caused by ignoring taxes may be an impossible task in some markets and indeed has never been conducted the canadian bond market provides perfect laboratory conditions for such a test tax clientele effects are present in the canadian market and among the clienteles is a representative clientele this paper examines the tax effects on immunization strategies the results show that the error caused by ignoring tax effects is not negligible and practitioners should use immunization with reference to tax effects