modelling money demand in open economies over the modern floating rate period the role of open economy factors in influencing domestic money demand in major industrial countries over the modern floating rate period is examined the theoretial model for the empirical analysis is derived from a general two country portfolio balance framework that determines the demand for domestic and foreign monetary and non monetary assets in each country the ecm estimates indicate that capital mobility plays an important role in the money demand function in all seven counteries considered currency substitution in contrast is not an important phenomenon

the demand for money in developing countries assessing the role of financial innovation traditional specifications of money demand have commonly been plagued by persistent overprediction implausible parameter estimates and highly autocorrelated errors the authors argue that some of these problems stem from the failure to account for the impact of financial innovation they estimate money demand for ten developing countries using various proxies for financial innovations they also assess the relative importance of this variable finding financial innovation can be better modeled as a stochastic random walk trend rather than a deterministic time trend financial innovation plays an important role in determining fluctuations of the demand for money the importance of this role increases with the rate of inflation

money demand in japan and nonlinear cointegration we estimate the long run japanese money demand function in a cointegration framework with two nonlinear functional forms that allow for the liquidity trap and compare the results with the standard log level functional form in addition to the conventional linear cointegration techniques we also use a recently developed procedure for nonlinear cointegration that allows the estimation of alternative functional forms under the same assumption regarding the trend properties of the nominal interest rate the nonlinear functional forms outperform the log level functional form based on out of sample prediction performance

a meta analysis of the export growth hypothesis abstract meta analysis is performed on a sample of seventy six studies that have empirically gauged the nexus between exports and economic growth the results show that studies that use aggregate exports report lower t ratios but studies that use oil and manufactured exports report higher t ratios the study also documents the existence of publication bias in the literature

exchange rate sensitivity of the demand for money in spain 1998 exchange rate sensitivity of the demand for money in spain applied economics vol 30 no 5 pp 607 612

structural changes and the us money demand function previous literature on the stability of the us money demand function suggests mixed results in this article we study the stability of the money demand function from the standpoint of structural changes in the function we first investigate if a stable money demand function can be found for the us for the period from the first quarter of 1959 to the fourth quarter of 2000 the results show that a stable long run money demand function does not exist for the sample period under consideration we then estimate unknown structural break points in the variables of the money demand function using bai and perron s 1998 method and test if there is a stable relationship in each sub sample period of the break points the results show that a stable relationship exists for each sub sample period the estimated income elasticity and interest rate semi elasticity are relatively smaller than ball s 2001 estimates but consistent with his argument

on the relevance of exports for regional output growth in china despite high economic growth during the past decades china is still vulnerable to shocks arising from industrial states the advanced economies strongly influence chinese export performance with subsequent effects on output growth using a production function this article examines to which extent regional gdp growth in china is export driven in a panel of 28 chinese provinces series are splitted into common and idiosyncratic components the latter being stationary the results indicate cointegration between the common components of gdp the capital stock and exports in equilibrium exports increase gdp by more than their impact expected from the national accounts while exports and capital are weakly exogenous gdp responds to deviations from the long run a similar adjustment pattern can be detected for most regions except for some provinces in the western part of the country

salary arbitration and pre arbitration negotiation in major league baseball two assumptions in this analysis of baseball salary arbitration are that 1 players and clubs to serve their interests in pre arbitration negotiation submit final offers to maximize and minimize

pollution energy use gdp and trade estimating the long run relationship for vietnam abstractsince the beginning of economic reform in the 1980s and in particular with its openness to international trade accelerating since the 1990s the vietnamese economy has registered significant growth at the same time energy consumption and the level of pollution in vietnam has also increased this article aims to focus on the link between openness to trade and pollution in vietnam due to lack of data very few existing studies have focused on vietnam using annual data from1980 to 2011 and employing the bounds testing approach to cointegration based on an autoregressive distributed lagged ardl model we find that there is a statistically significant long run relationship amongst pollution openness to trade energy consumption and real national income in vietnam this conclusion continues to hold when the possibility of a structural break in the relationship is allowed for using the gregory hansen approach to cointegration analysis of the cointegration relationship suggests that in respons

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

deficits and inflation an open economy model of the united states the deficit debate is a recurring theme in academic and political circles the controversy is over the effect of deficits on inflation and interest rates the existing body of empirical evidence does not resolve the controversy this paper focuses on the inflationary impact of deficits the model used is derived from a comprehensive is lm analysis which incorporates a foreign trade sector and a general price adoptive expectation adjustment mechanism we test the model using time series data for the united states from our results we conclude that nia deficits have no significant bearing on the rate of inflation

stability of the money demand function in asian developing countries previous studies that estimated the money demand function in asian developing countries either employed traditional estimation techniques or recently popularized cointegration technique while the first group suffers from spurious regression problems the second group interpreted their finding of cointegration as a sign of stability of estimated parameters this study after incorporating the cusum and cusumsq tests into cointegration analysis shows that in some asian countries even though real m1 or m2 monetary aggregates are cointegrated with their determinants the estimated parameters are unstable

is china different a meta analysis of export led growth we examine whether china has benefited more from exports than other countries the results show that exports have been more significant for growth in china than in other countries even when china is compared with other transition economies

a theoretical and empirical comparison of free agent and arbitration eligible salaries negotiated in major league baseball this paper presents a theoretical and empirical comparison of determination of negotiated salaries in baseball s free agent market to that in its final offer arbitration foa system the theoretical bargaining model of each system is based on nash 1950 it is argued that farber s 1980 model of foa is not fully applicable in explaining baseball s foa process the free agent market and the arbitration system each determine negotiated salaries that are dependent on the different disagreement outcomes of the negotiators in the respective systems it is thus concluded theoretically that the two systems will determine salaries differently the theoretical analysis also suggests that there may be selection bias present when one empirically analyzes only negotiated settlements using a straightforward regression model that controls for productivity playing experience and the potential selection bias the empirical analysis substantiates the theory s results a method is then developed to estimate the effect that free agent salaries have on salaries for arbitration eligible players it is found that there is a significant positive relationship between them but the systems do not determine equal salaries for comparable players

when and where does foreign direct investment generate positive spillovers a meta analysis local firms may attract productivity spillovers from foreign investors yet these vary with local firms awareness capability and motivation to react to foreign entry in consequence spillovers vary across countries at different levels of economic development we apply competitive dynamics theory to analyze these contextual moderators of spillovers and test hypotheses thus derived in a meta analysis of the empirical literature on spillovers our analysis suggests a curvilinear relationship between spillovers and the host country s level of development in terms of income institutional framework and human capital

cointegration and structural change an application to the u s demand for money wankeun oh i perform the cointegration tests for the trivariate model of real monetary aggregates real personal income and short term interest rate i find the existence of a long run relationship among these three variables to check the stability of a long run money demand relationship i implement a rank constancy test and cusum test the test results show that real mi is relatively more stable than other aggregates but structural change occurred during the 1970s and early 1980s this is consistent with prior research on money demand jel e41 i introduction incorporating structural change when performing tests on the properties of stochastic processes is important because structural breaks may cause misspecification problems most tests of structural change consider the stability of the parameters over time tests for structural breaks and parameter stability have been studied extensively a partial list includes chow 1966 brown et al 1975 harvey and collier 1977 king 1987 ploberger et al 1989 in the context of unit root processes perron 1989 showed that the presence of a one time change in the level or slope of the trend function can severely distort the results of unit root tests and it is natural to ask how structural change can distort the results of cointegration tests 1 traditional tests of parameter stability ask if the parameters of the model are constant in contrast quintos 1993 proposed a test for stability of the long run relationship s in a cointegrating regression the test is based on johansen s 1988 framework and the test statistic is simply the weighted sum of the likelihood ratio test as given in johansen 1988 quintos s rank test is very different from the traditional cusum and chow tests for parameter stability because her rank test checks for stability of the cointegrating relationship between variables in other words the rank test checks whether cointegration holds for the full period the traditional cusum and chow tests assume that cointegration holds for the full period or does not hold for the full period and tests simply whether the cointegration vector changes for example if there is cointegration from 1960 1990 between revenues and expenditures with cointegrating vector 1 1 then the cusum and chow tests check whether the cointegra ting vector 1 1 is stable throughout the period the rank constancy test checks whether the cointegration rank is stable throughout the period not whether the cointegrating vector is stable at 1 1 in other words the rank test will check whether for example there is cointegration from 1960 1980 and no cointegration from 1980 onward the chow and cusum tests are not designed to check for this the structural stability of money demand relationships has been the issue of a substantial number of empirical studies 2 in general structural stability means stability of the underlying behavioral equations 3 this term includes parameter stability and stability of functional form friedman s 1990 research on the money demand function assumes that a long run equilibrium relationship exists between real money balances real income or real wealth and the opportunity cost of holding real money balances recently there has been strong evidence of cointegration between real income real money balances and a nominal interest rate for instance engle and granger 1987 dickey et al 1991 hafer and jansen 1991 hoffman and rasche 1991 mehra 1993 miller 1991 fischer and nicoletti 1993 and baba et al 1992 report on cointegration among variables in u s aggregate money demand jain and moon 1994 report on cointegration in u s sectoral money demand yashiv 1994 and engsted 1993 on money demand in a high inflation country and hoffman et al 1995 report on international money demand comparison this article asks if long run money demand relationship is stable and if so for which measure of money is it stable over time

trade and poverty in the poor countries now widely regarded as economically benign in the sense that it increases the size of the pie the recent anti globalization critics have suggested that it is socially malign on several dimensions among them the question of poverty 2 their contention is that trade accentuates not ameliorates and that it deepens not diminishes poverty in both the rich and the poor countries the theoretical and empirical analysis of the impact of freer trade on poverty in the rich and in the poor countries is not symmetric of course we focus here only on the latter in doing so we distinguish between two different strands of argumentation static and dynamic

can prior offers and arbitration outcomes be used to predict the winners of subsequent final offer arbitration cases preferences is past outcomes given its goal of driving negotiated settlements an effective foa process requires bargainers to infer useful information about arbitrator preferences from past outcomes using data from major league baseball this article provides evidence that past foa decisions are positively correlated with the outcomes of future foa cases

long run income and interest elasticities of money demand in the united states econometric techniques designed to accommodate nonstationary data are used to reexamine the stability of interest and income elasticities of money demand in the united states estimates based on postwar monthly data reveal a stable relationship between m1 velocity and various measures of interest rates that proxy the opportunity cost of holding money balances tests for the existence of cointegration and methods used to estimate the income and interest elasticities are based on procedures prescribed by soren johansen 1988 corresponding error correction estimates offer insight as to the dynamics of the process that maintains the equilibrium relation between velocity and interest rates copyright 1991 by mit press

do negotiated and arbitrated salaries differ under final offer arbitration the authors investigate whether negotiated settlements differ from arbitrated ones under final offer arbitration examining the salaries of all major league baseball players eligible to participate in final offer arbitration between 1986 and 1991 they find that arbitration awards won by players are higher and those won by management are lower than negotiated settlements for players of comparable value this evidence suggests that arbitrated settlements are of low quality relative to negotiated ones in the sense that they tend to fall outside the bounds of potential negotiated settlements another implication of these findings however is that the bargaining agents retain substantial freedom to negotiate salaries that are not determined solely by arbitrator preferences

on the welfare cost of inflation and the recent behavior of money demand post 1980 u s data trace out a stable long run money demand relationship of cagan s semi log form between the m1 income ratio and the nominal interest rate with an interest semi elasticity of 1 79 integrating under this money demand curve yields estimates of the welfare cost of modest departures from friedman s zero nominal interest rate rule for the optimum quantity of money that are quite small the results suggest that the federal reserve s current policy which generates low but still positive rates of inflation provides an adequate approximation in welfare terms to the alternative of moving all the way to the friedman rule jel e31 e41 e52

short run money demand abstract the conventional wisdom holds that the short run demand for money is unstable this paper challenges the conventional view by finding a stable demand for m1 in u s data from 1959 through 1993 the approach follows previous work in interpreting long run money demand as a cointegrating relation and it uses goldfeld s partial adjustment model to interpret short run dynamics the key innovation is the choice of the interest rate in the money demand function most previous work uses a short term market rate but this paper uses the average return on near monies the savings accounts and money market mutual funds that are close substitutes for m1 this choice helps rationalize the behavior of money demand in particular the increase in the volatility of velocity after 1980 is explained by increased volatility in the returns on near monies

regression direction and weak exogeneity abstract the absence of testing for weak exogeneity in money demand has often led to stark conditioning claims regarding the validity of price equations this paper uses the johansen procedure to explore the conditioning properties of money demand systems for nonborrowed reserves m1 and m2 our results show that irrespective of the specification of the cointegrating relation a feedback mechanism enters the equation for money the opposite however is not true for the price equations the results also cast a warning for single equation models of money demand in that weak exogeneity is sensitive to how the system is defined

the search for equilibrium relationships in international finance the case of the monetary model abstract this paper considers some of the main long run equilibrium relationships in international finance we supplement the phillips perron test which has a unit root under the null with the new kps test statistic which is based on a stationary null and apply them to the various exchange rate fundamentals the application of the johansen test for multiple cointegrating factors finds evidence of the existence of stable money demand functions in both the usa and uk with relatively short lived perturbations however there appears to be insufficient information in the data to distinguish whether the real exchange rate has a unit root or is persistent and mean reverting the consequent persistent deviations from purchasing power parity appears the only source of rejection of the equilibrium monetary model

a survey of some recent econometric methods this survey is written mainly for the applied economist though we hope that the specialist econometrician will find something of interest too our aim has been to try to bring the applied worker as up to date as possible and in the process to improve the quality of applied work by providing access to the latest ideas in econometrics we have tried to describe and explain in a relatively non technical way the main developments that have taken place in the last ten years partly for reasons of space the survey is by no means exhaustive but it does cover a wide range of topics in both time series and cross section analysis among the subjects covered are the followoing the nature of data including integrated and fractionally integrated data four estimation methods maximum likelihood method of moments m estimators and non parametric estimation inference with stationary and integrated regressors a comparison of various model evaluation principles the formulation of models including dynamic specification cointegration and conditional expectations in mean and variance copyright 1989 by royal economic society

sluggish inflation and optimizing models of the business cycle abstract many researchers have added sticky prices to quantitative business cycle models i simulate several of these models in order to evaluate their success at reproducing two features of us data the lagged reaction of inflation to monetary growth and the persistence of inflation

nonlinear equilibrium correction in u s real money balances 1869 1997 several theoretical models of money demand imply nonlinear functional forms for the aggregate demand for money characterized by smooth adjustment toward long run equilibrium in this paper we propose a nonlinear equilibrium correction model of u s money demand that is shown to be stable over the sample period from 1869 to 1997

a comparison of interest arbitrator decision making in experimental and field settings recent studies have investigated arbitrator decision rules in both experimental and field settings the authors of this paper evaluate the external validity of experimental studies by comparing the decisions made in an experiment with those made in actual cases by the same arbitrators the results show that when the single issue decisions made in the experiment are compared with the multi issue decisions made in many field cases the arbitrators decision models in the two settings as indicated by the weights they attached to various facts of the case and their level of uncertainty about which offer to choose appear to differ but when the experimental data are compared to the decisions in the sample of field cases in which the wage was the only issue the decision models are substantially the same

sweep programs the fall of m1 and rebirth of the medium of exchange this paper investigates the effect of sweep programs on m1 using dynamic simulations of money demand over 1994 2000 the postsample period constitutes when sweep programs have been in effect all models generate predictions systematically above reported m1 using data on newly initiated programs test findings indicate that sweeps account for the overprediction within the conventional money demand model with a long term interest rate we construct a medium of exchange measure m1s equal to m1 plus estimated holdings of sweep balances m1s velocity compares favorably with that of broader aggregates evidence indicates cointegration within m1s money demand

arbitrator decisions in wisconsin teacher wage disputes this study examines the role of wage comparability in the decisions of arbitrators in final offer wage disputes between wisconsin teachers and school boards in 1977 86 the authors find that wage increases agreed to earlier in the bargaining round by comparable school districts specifically other districts within the same athletic conference had a substantial impact on the decisions of the arbitrators this result is not predicted by most theoretical studies of interest arbitration but it is consistent with previous institutional research the written awards of wisconsin arbitrators and the bargaining strategies of the parties

learning from interest arbitration the next round in final offer arbitration the decision of the arbitrator provides the parties with information about the preferences of the arbitrator that is not available prior to the award using data from wisconsin teacher negotiations from 1977 to 1986 the authors find that the information contained in an award altered the parties expectations about the arbitrator s preferences and influenced the subsequent negotiated settlement the negotiated settlement following an award was higher when the union s final offer was selected than when the employer s offer was selected in the round following an award the variance in negotiated settlements declined and the wage structure toward which the settlements converged was one that conformed with the arbitrator s views of fairness

the asymmetric relationships between pollution energy use and oil prices in vietnam some behavioural implications for energy policy making abstract with rapidly expanding real gdp in vietnam it is anticipated that the vietnamese energy production will increase to meet its rising energy consumption an important corollary is that pollution will also rise since the energy sector is considered a big polluter in the developing world this paper brings two important insights to this literature first and foremost this paper seeks to establish if any behavioural biases of policy makers have clouded the decision to adopt suitable energy technologies and policies in vietnam with far reaching consequences for sustainability in the region secondly in order to detect behavioural biases it considers the asymmetric effects of increases vis a vis decreases in regressors by using the non linear autoregressive distributed lags nardl models to examine how such increases or decreases really impact on pollution in vietnam using annual data from 1982 to 2015 the analysis finds that the long run relationships between pollution energy use and oil prices have been characterised by non linear and asymmetric interlinkages to indicate hidden cointegration we further argue that such hidden cointegration can signal important behavioural biases in energy policy making

the welfare effect of access to credit i present a model in which credit and outside money can be used as means of payment in order to analyze how access to credit aects welfare when credit markets feature limited participation allowing more agents to use credit has an ambiguous eect on welfare because it may make consumption risk sharing more ine cient i calibrate the model using u s data on credit card transactions and show that the increase in access to credit from 1990 to the near present has had a slightly negative impact on welfare

results of a study of the stability of cointegrating relations comprised of broad monetary aggregates abstract we find strong evidence of a stable money demand relationship for mzm and m2m through the 1990s though the m2 relation breaks down somewhere around 1990 evidence has been accumulating that the disturbance is well characterized as a permanent upward shift in m2 velocity which began around 1990 and was largely over by 1994 taken together our results support the hypothesis that households permanently reallocated a portion of their wealth from time deposits to mutual funds although this reallocation may have been induced by depository restructuring we argue that the substitution could be explained by appropriately measured opportunity cost

the appropriate scale variable in the u s money demand an application of nonnested tests of consumption versus income measures the purpose of this article is to employ several nonnested procedures to empirically test the proposition put forward by mankiw and summers that consumption rather than income is the appropriate scale measure in the money demand function real income real disposable income consumer spending on nondurables personal consumption expenditures and total private spending are tested as candidates for the scale variable tests are carried out for both m1 and m2 concepts of money the results based on both m1 and m2 support the mankiw summers position but the results based on m2 are not as strong as those based on m1 implications for fiscal and monetary policies are discussed

a money demand function with output uncertainty monetary uncertainty and financial innovations in a general equilibrium framework incorporating the money in the utility function approach we show that output uncertainty and monetary uncertainty as well as output interest rates and financial innovations affect money demand the estimated long run relationships are consistent with our postulated relation but not with the conventional one our model delivers a high income elasticity consistent with cross sectional evidence and helps resolve m1 demand puzzles the model estimated in dynamic error correction form exhibits a good level of stability and forecastability providing little support for the recent de emphasis of monetary aggregates due to the instability of money demand

currency substitution and nonlinear error correction in taiwan s demand for broad money we modify the conventional money demand function by including a real exchange rate variable to reflect the effect of currency substitution empirical evidence indicates that the variable is crucial to the long run stability of taiwan s money demand after finding the failure of a linear error correction model ecm in describing the dynamics of taiwan s money demand we apply a nonlinear ecm to examine its dynamics and support the appropriateness of the nonlinear model empirically

a closer look at long run u s money demand linear or nonlinear error correction with m0 m1 or m2 i introduction the stability of money demand has been a long standing issue 1 lucas 1988 informally analyzes the stability of a log linear m1 money demand function and concludes that real money demand is a stable function and he supports earlier findings of meltzer 1963 with an income or wealth elasticity of around unity 2 with the development of cointegration methods engle and granger 1987 numerous empirical studies have applied these techniques to long run u s money demand examples are baba hendry and starr 1992 haferand jansen 1991 hoffman and rasche 1991 and miller 1991 who find support for a cointegrated money demand model with either m1 or m2 3 king et al 1991 also find support for cointegration with m2 and a short term interest rate in contrast to these studies others have argued against a stable u s money demand function in the postwar period for example friedman and kuttner 1992 do not find support for cointegration particularly when the period march 1970 to april 1990 is considered similarly miyao 1996 studies the behavior of the m2 money demand function over the period from 1959 to 1993 with quarterly data and various interest rates in levels and in logs miyao concludes that m2 is not a useful intermediate target for monetary policy in the 1990s 4 however carlson et al 2000 reach the conclusion that m2 does have predictive content for nominal economic activity and that the real m2 money demand function is stable but only after accounting for financial innovation in the first half of the 1990s two recent papers ball 2001 and stock and watson 1993 focus on especially long data sets for the united states and m1 stock and watson 1993 analyze various estimation methods for cointegrating relationships and illustrate their performance for money demand functions with annual data from 1900 to 1987 they pay particular attention to the postwar period and use monthly data in addition to annual data for this period they employ a semi log linear real m1 money demand model with real net national product and the level of the 6 mo commercial paper rate for the postwar period they also consider the 90 day treasury bill rate and the 10 yr treasury bond rate they compare and contrast their results to those of various others they also carry out recursive estimations to check their results for stability stock and watson 1993 conclude that a long span of data is needed to estimate long run money demand functions precisely their overall evidence is in favor of a stable long run money demand function with an income elasticity near one and an interest rate semielasticity near 0 10 however the postwar data are found to be not very informative a lack of low frequency variation in the postwar data as suggested by lucas 1988 does not allow a disentangling of the effects of output and interest rates on money demand for this time period estimates are imprecise and sensitive to subsample specifications due to substantial colinearity ball 2001 revisits the m1 money demand model of stock and watson 1993 using the same data set but extended through 1996 he applies the same array of estimation techniques as stock and watson did ball obtains precise estimates over the postwar period for his extended data set an income elasticity of approximately 0 5 and a semielasticity of 0 05 for the interest rate he does not find support for a velocity specification the m1 model is not stable over the period 1900 1996 lutkepohl terasvirta and wolters 1999 apply a nonlinear error correction model with smooth transition adjustment to capture instabilities in the linear cointegration model the long run equilibrium is described by a linear cointegrating relation and the adjustment to this long run equilibrium is nonlinear they analyze german m1 money demand granger and terisvirta 1993 terasvirta 1998 and van dijk terasvirta and franses 2002 provide details on the econometric theory for estimating and testing such nonlinear models

breaks in money demand during the last twenty years beginning with the provocative paper by goldfeld 5 that revealed the case of the missing money the question of whether money demand the relationship between money income and an interest rate is stable has been intensively investigated using a variety of econometric techniques currently the most popular framework for examining the behavior of money demand is the cointegration framework in this framework the stationarity of money demand instead of the stability of money demand is evaluated earlier tests of the stability of money demand typically centered on whether the coefficient estimates were stable i e not subject to a structural break these tests did not consider the underlying time series aspects of the variables in money demand or the time series properties of their joint relationship prior to estimation as is now common given the seminal work of engle and granger 1 since then newer tests have focussed on the time series properties of the money demand variables and whether the joint relationship between the variables is stationary i e whether the variables are cointegrated engle and granger 1 and johansen and juselius 10 offer cointegration estimation procedures that have been applied by numerous researchers to the money incomeinterest rate relationship the pervasive finding is that money demand is non stationary see section ii below structural stability has not typically been a facet of investigation however the issues of stationarity and stability should not necessarily be treated independently failure to take account of structural change may bias the results in favor of non stationarity as shown in perron 16 1 history suggests that the economic environment and monetary institutions regulations and operating procedures have changed over time in the early 1970s the fixed exchange rate system collapsed when the gold exchange standard was abandoned and the u s dollar became a fiat currency during that same time the u s suffered an oil price shock that produced accelerating inflation and stagnant gdp growth an outcome that had never before been experienced in

u s narrow money for the twenty first century i introduction though money retains its fundamental role in a market economy money measures have been noticeably de emphasized within the conduct of u s monetary policy the federal open market committee fomc stopped reporting annual growth objectives for monetary aggregates although it states that money supply still has value for gauging economic conditions board of governors 2000 however a growing body of research calls for returning monetary aggregates to a more prominent role within monetary policy meltzer 1998 asserts that the view of persistent money growth as being the source of inflation is again widely accepted perhaps more firmly held by some central bank governors now than at any time in the twentieth century nelson 2002 provides evidence that base money has a significant effect on output relative to potential in the united states and united kingdom even after controlling for the short term real interest rate nelson 2003 argues that money growth governs the mean and dynamics of inflation in present day new keynesian models leeper and roush 2003 find evidence of an essential role for m2 within the transmission of monetary policy even after controlling for the nominal interest rate 1 this article focuses on the role of sweep programs in properly measuring narrow money in a sweep program banks move a portion of funds from customer demand deposits dds or other checkable deposits ocds into instruments with zero statutory reserve requirements we examine the effects of two types of sweep programs in the united states retail sweep programs and commercial demand deposit sweep programs narrow transactions based money historically has played a key role in the conduct of monetary policy as hafer and wheelock 2001 explain m1 served as the measure of money within the st louis model although monetarists had long been divided over whether a narrow or broad aggregate was the preferable target for monetary policy the fomc appeared to focus on m1 during the 1970s and early 1980s publishing their target ranges for money growth in terms of m1 hafer and wheelock 2001 though state that deviations in m1 velocity from its upward trend beginning in the early 1980s caused instability within the st louis model hoffman and rasche 1991 and hoffman et al 1995 place dummy variables in their vector error correction mechanisms to capture observed shifts in m1 velocity what attention remains on the money supply seems to be focused on broad rather than narrow aggregates but the broad aggregates have not escaped difficulties duca 2000 and hafer and wheelock 2001 document a deviation of m2 velocity from its long run trend in the early 1990s sometimes characterized as the missing m2 episode duca and vanhoose 2004 state that one response was to replace m2 with mzm consistent with the view that heightened substitution between small time deposits and mutual funds other than money market mutual funds mmmfs largely accounted for the instability in m2 velocity but as they go on to discuss m2 and mzm velocity encountered problems in the early 2000s plunging in ways not in line with opportunity cost variables duca and van hoose 2004 state that broader aggregates may have become more vulnerable to portfolio substitution involving stock and mutual funds other than mmmf narrow money has also been used extensively in examining money demand a sizable body of research has emerged that empirically investigates the demand for m1 especially using cointegration techniques hoffman and rasche 1991 hoffman et al 1995 dutkowsky and atesoglu 2001 and ball 2001 provide evidence of a stable long run money demand equation using m1 ball 2002 generates further support with m1 and establishes a correspondence between the partial adjustment formulation and the vector error correction model yet research and policy making using narrow money is currently being hampered by the lack of an accurate measure of transactions based money

applied cointegration analysis in the mirror of macroeconomic theory summary cointegration analyses of macroeconomic time series are often not based on fully specified theoretical models we use a theoretical model to scrutinize common procedures in applied cointegration analysis monte carlo experiments show that 1 some tests of the cointegration vectors do not work well on series generated by an equilibrium business cycle model 2 cointegration restrictions add little to forecasting 3 structural var models based on weak long run restrictions seem to work well the main disadvantages of cointegration analysis without strong links to economic theory are that it makes it hard to estimate and interpret the cointegration vectors

time series minimum wage studies a meta analysis time series minimum wage studies a meta analysis author s david card and alan b krueger reviewed work s source the american economic review vol 85 no 2 papers and proceedings of the hundredth and seventh annual meeting of the american economic association washington dc january 6 8 1995 may 1995 pp 238 243 published by american economic association stable url http www jstor org stable 2117925 accessed 04 11 2011 15 46

the time varying performance of the long run demand for money in the united states george s tavlas this article investigates the issues of the stability and predictability and interestsensitivity of money demand over 1870 1997 two different estimation methodologies are used random coefficient rc modeling and vector error correction vec modeling the former procedure allows the profiles of the coefficients to be traced over time and relaxes several restrictions routinely imposed in applied work the results indicate that different estimation methodologies using different data periods and frequencies yield estimates of some of the coefficients of the long run demand for money that fall within a fairly narrow range the results also suggest that specification errors have had an important influence on the time profile of the interest elasticity of money demand and that there is a tendency for the interest elasticity to decline in absolute value as interest rates decline jel c20 e47 i introduction this article reinvestigates the issues of the stability predictability and interestsensitivity of the long run demand for money in the united states 1 the model used is closely based on that used by friedman and schwartz 1982 the data are also those of friedman and schwartz extended by bordo et al 1997 and us to include more recent observations while the data frequency is annual rather than averaged over business cycle phases as used by friedman and schwartz 2 two very different methodologies are used to examine the issue of money demand behavior vector error correction vec modeling and random coefficient rc modeling the former approach is aimed at addressing problems of spurious correlation produced by integrated variables and dynamic misspecification due to inadequate lag structures and attempts to integrate short run dynamics with departures from long run equilibrium relationships the underlying philosophy of this approach is the general to specific methodology popularized by hend ry and his associates e g hendry and ericsson 1991 ericsson et al 1998 the rc approach developed by swamy and tinsley 1980 swamy and tavlas 1992 1995 2000 and christou et al 1996 1998 is aimed at dealing with four major specification problems discussed in section ii that often arise in econometric estimation we use it to shed light on such issues as the stability and predictability of money demand and whether the demand for money was more interest sensitive during the 1930s great depression than in other periods and indeed whether a liquidity trap existed in the 1930s the remainder of this article is divided into three sections section ii discusses the basic money demand specification the data and the vec and rc estimation procedures section iii presents the estimation results both the vec and rc models are estimated using annual data covering 1870 1989 and postsample forecasts are generated over 1990 1997 the models are then reestimated over earlier periods to test how well they forecast in a variety of circumstances including the great depression years for as goldfeld 1992 623 put it in his survey of the money demand literature ultimately of course such models need to stand the forward test of time that is they need to continue to hold outside the period of estimation 3 an aim of the article is to inquire whether two different empirical methodologies can provide a stable long run demand for money function that can perform well in prediction if so this should provide some reassurance about the empirical properties of that function section iv concl udes ii the model data and estimation procedures a basic friedman schwartz specification friedman and schwartz 1982 posited the following money demand function 1 ln m sub t alpha sub 0 alpha sub 1 r sub t alpha sub 2 ln y sub t alpha sub 3 g sub yt u sub t where m