u s money demand structural shifts or heterogeneous agents this paper examines whether observed structural shifts in the money demand function could be the result of agent heterogeneity due to different household income levels following the methodology of stoker 1986 income distribution variables are found to be significant determinants of money demand and once changes in the distribution of income are accounted for there is no evidence of parameter instability a money demand function incorporating income distribution effects is shown to perform as well or better than several standard alternatives on the basis of diagnostic tests non nested hypothesis tests within sample prediction errors and out of sample forecasting

test of the adjustment process and linear homogeneity in a stock adjustment model of money demand stock adjustment models of money demand have employed either the nominal or real adjustment process but they have not been tested statistically due to their nonnestedness this paper formulates a general stock adjustment model which includes both nominal and real adjustment processes as its nested subsets each process is then tested against the general specification the paper also examines the homogeneity of money demand with respect to price level and income in the general model

an empirical analysis of self employment in the u k the paper formulates a self employment paid employment choice problem that draws upon knight s notion that the individual responds to the risk adjusted relative earnings opportunities in each sector based on a development of such choice theoretic considerations an econometric model is developed with the purpose of empirically examining the determinants of self employment the model features simultaneous determination of employment status and earnings which allows for self selectivity the model is estimated using a sample of 4762 individuals from the general household survey for 1978 the estimation of the earnings equation enables a calculation of the self employment paid employment earnings differential and the estimated probit equation for self employment paid employment status facilitates the prediction of the probability of self employment the paper finds that there is positive selection bias in the observed earnings of employees that the probability of self employment depends positively on the earnings difference between the two sectors and that education and age are significant determinants of self employment

investigating m3 money demand in the euro area abstract euro area monetary growth has exceeded its target since 2001 likewise recent empirical studies did not find evidence in favour of a stable long run money demand function in contrast to the bulk of the literature we are able to identify a stable long run money demand relationship this result is obtained when the analysis is done without the short run homogeneity restriction between money and prices the basic equation can be improved by allowing for asymmetric adjustment in a low inflation environment opportunity costs of holding money have decreased thus the apparent monetary overhang is reconciled within standard models

clean energy policy taxing carbon and the illusion of the equity objective abstract the australian government has passed legislation the clean energy future policy establishing a carbon emission pricing scheme while the scheme is represented as the most efficient and cost effective means of reducing emissions the government has also committed to ensuring equity in burden sharing particularly through the use of household compensation methods and by minimising the disadvantages faced by energy intensive trade exposed industries thereby committing to these industries continued developments treasury modelling used to determine the required level of household compensation has remained relatively uncontested we question the conclusion of equity in burden sharing on the basis of this modelling the modelling reflects fairly standard conventional economic theory in terms of market structures the determination of prices and outputs and the characterisation of factor markets the behavioural assumptions overstate the consumer and producer substitution possibilities failing to consider the possibility of technical reswitching and ignore the impact that oligopolistic market structures would have on price increases and infrastructure investment the full ramifications of compensation for overall government expenditure and therefore the capacity of the government to continue to fund a range of elements of the social wage the potential for unemployment and transitioning workers to less carbon intensive industries are also overlooked

stock market downswing and the stability of european monetary union money demand this article analyzes the question whether money demand in the euro area underwent a structural change in the end of 2001 when m3 money growth started to considerably overshoot the reference value set by the european central bank it is found that conventional specifications of money demand have in fact become unstable whereas specifications that are augmented with equity returns and volatility remain stable using such an augmented specification it turns out that the high m3 growth rates have not led to excess liquidity and thus do not pose a measurable threat to price stability

an empirical test of the effects of government deficits on money demand there is a great deal of interest in how govenment deficits affect macroeconomic variables accordingly there is a large body of theoretical and empirical work on the topic this paper examines the relationship between deficits and interest rates among the difficulties in exploring this relationship is that when conducting monetary policy the federal reserve often targets interest rates such a policy can cloud any relationship between deficits and interest rates a way to avoid this problem among others is to estimate money demand functions that contain a measure of the market value of government debt no evidence is found to support a positive relationship between government debt and money demand this finding implies budget deficits do not affect interest rates through money demand

a small monetary system for the euro area based on german data previous euro area money demand studies have used aggregated national time series data from the countries participating in the european monetary union emu however aggregation may be problematic because macroeconomic convergence processes have taken place in the countries of interest therefore in this study quarterly german data until 1998 are combined with data from the euro area from 1999 until 2002 and these series are used for fitting a small vector error correction model for the monetary sector of the emu a stable long run money demand relation is found for the full sample period moreover impulse responses do not change much when the sample period is extended by the emu period provided the break in the extended data series is captured by a simple dummy variable copyright 2006 john wiley sons ltd

an econometric analysis of interfirm labour mobility this paper utilizes the survey of work history 1981 data to examine the importance of non random sampling in the context of a model of interfirm labour mobility the paper adopts heckman s two step procedure in order to estimate a three equation model incorporating an individual s mobility status as endogenously determined the main conclusion is that in estimating wage equations it is important to consider the role of job mobility and to correct for the effects of sample selection bias the results generally accord with those reported by osberg et al 1986 in the only previous canadian study of job mobility in a sample selection context

the two pillars of the european central bank i interpret the european central bank s two pillar strategy by proposing an empirical model for inflation that distinguishes between the short and long run components of inflation the latter component depends on an exponentially weighted moving average of past monetary growth and the former on the output gap estimates for the 1971 2003 period suggest that money can be combined with other indicators to form the broadly based assessment of the outlook for future price developments that constitutes the ecb s second pillar however the analysis does not suggest that money should be treated differently from other indicators while money is a useful policy indicator all relevant indicators should be assessed in an integrated manner and a separate pillar focused on monetary aggregates does not appear necessary stefan gerlach

liquidity and the dynamic pattern of asset price adjustment a global view abstract global liquidity expansion has been very dynamic since 2001 contrary to conventional wisdom high money growth rates have not coincided with a concurrent rise in goods prices at the same time however asset prices have increased sharply significantly outpacing the subdued development in consumer prices we investigate the interactions between money and goods and asset prices at the global level using aggregated data for major oecd countries our var results support the view that different price elasticities on asset and goods markets explain the observed relative price change between asset classes and consumer goods

the coal question that emissions trading has not answered abstract can emissions trading assist with the task of placing a limit on coal production and consumption in australia this paper outlines a critical political economy perspective on coal and a flagship market mechanism for emissions reduction the prospects for an effective emissions trading scheme in coal dominated economies are considered in light of its theoretical justifications as well as recent attempts to price carbon in australia emissions trading is a weak instrument that does not address real world failures of coal governance at their theoretical best carbon prices produce marginal changes to the cost structure of production in practice the australian case demonstrates emissions trading is an attempt to displace the emissions reduction task away from coal through compensation arrangements and offsetting in light of the urgent need to rapidly reduce global emissions direct regulation and democratisation of coal production and consumption should be flagship climate policy

is quantity theory still alive this paper investigates whether the quantity theory of money is still alive we argue that it is but that the slippage is not negligible for countries with low inflation the relationship between average inflation and the growth rate of money is tenuous at best a correction for variation in output growth and the opportunity cost of money using theory implied elasticities helps explain the slippage for the period since 1990 inflation targeting at low rates of inflation makes it harder to establish the long run relationship between monetary growth and inflation

interpreting euro area inflation at high and low frequencies abstract several authors have recently interpreted the european central bank s ecb s two pillar framework as separate approaches to forecast and analyse inflation at different time horizons or frequency bands the ecb has publicly supported this understanding of the framework this paper presents further evidence on the behaviour of euro area inflation using band spectrum regressions which allow for a natural definition of the short and long run in terms of specific frequency bands and causality tests in the frequency domain the main finding is that variations in inflation are well explained by low frequency movements of money and real output growth and high frequency fluctuations of the output gap

investigating m3 money demand in the euro area new evidence based on standard models monetary growth in the euro area has exceeded its target level especially since 2001 likewise recent empirical studies did not find evidence in favour of a stable long run relationship between the variables entering the money demand function instead the equation appears to be increasingly unstable if more recent data are included since the link between money balances and macroeconomic variables seems to has become rather fragile these results put serious doubts concerning the rationale of monetary aggregates in the monetary policy strategy of the ecb however if the analysis is done without imposing a short run homogeneity restriction between money and prices a stable long run money demand relationship can be identified where recursively estimated parameters are almost stable in addition the corresponding error correction model survives a wide array of specification tests including procedures for nonlinearities and parameter instability hence the apparent monetary overhang is in line with standard models of money demand behaviour and is not expected to lead to a rise in inflation

modeling monetary trends in italy using historical data the demand for broad money 1861 1990 in this paper we estimate a stable demand for money relationship for italy using a long series of historical data we extend previously available data sets to obtain a sample for the years 1861 to 1990 and use cointegration analysis and two stage estimation procedures to obtain a dynamic model for m2 demand by employing a small number of explanatory variables and a nonlinear error correction model we find a stable demand for money relationship our model incorporates significant inflation and interest rate effects in contrast to previous studies of this type

country characteristics and the effects of government consumption shocks on the current account and real exchange rate abstract this paper examines the effects of government consumption shocks on the current account and the real exchange rate as well as the influence of various country characteristics on these effects a dataset of 18 industrial countries is used for the analysis panel var models are estimated for the groups of countries classified by country characteristics the primary empirical findings are as follows first positive government consumption shocks lead if anything to real exchange rate depreciation but the direction of the current account response varies across samples in particular positive government consumption shocks lead to real exchange rate depreciation under a floating exchange rate regime second international capital mobility has a significant impact on the effects of government consumption shocks the depreciation of the real exchange rate and the improvement of current account are larger in countries with low international capital mobility than those with high capital mobility third albeit less robust the depreciation of the real exchange rate and the improvement of the current account are larger in countries under more flexible exchange rate regimes than those under less flexible exchange rate regimes in addition the current account improves more in countries with high trade openness than those with low trade openness standard theories do not fully explain these empirical patterns thus these findings suggest a need for further theoretical development

the economics of climate change impacts a la stern novel and nuanced or rhetorically restricted abstract the stern report conducts an estimation of greenhouse gas control costs weighed against the benefits of avoiding damages at the global scale as i show stern and colleagues are aware of the limits to cba although they chose to ignore the considerable literature on the subject the many contributions by ecological economists and especially work specific to the enhanced greenhouse effect various problems are raised or mentioned in the report including strong uncertainty incommensurability plural values non utilitarian ethics rights distributional inequity poverty and treatment of future generations how then can this report acknowledging so many of those aspects of climate change that render cba an unsuitable tool for generating policy recommendations go ahead to conduct a global cba and make policy recommendations i explain how issues are suppressed and sidelined in a careful and methodical manner with the pretence they have been addressed by state of the art solutions meanwhile the authors maintain allegiance to an economic orthodoxy which perpetuates the dominant political myth that traditional economic growth can be both sustained and answer all our problems besides perpetuating myths this diverts attention away from alternative approaches away from ethical debates over harming the innocent the poor and future generations and away from the fundamental changes needed to tackle the very real and serious problems current economic systems pose for environmental systems

the demand for money and non gdp transactions abstract this paper argues that transactions in non gdp items have an important influence on the level of money demand the paper provides empirical estimates of models of both m 1 and m 2 money demand that include variables proxying for the volume of transactions in real estate and financial assets these variables have the theoretically predicted positive sign and are statistically significant their inclusion also improves out of sample forecasts

investigating stability and linearity of a german m1 money demand function starting from a linear error correction model ecm the stability and linearity of a german m1 money demand function are investigated applying smooth transition regression techniques using seasonally unadjusted quarterly data from 1961 1 to 1990 2 it is found that the money demand equation considered is both linear and stable after extending the sampling period until 1995 4 a clear structural instability due to the monetary unification on 1 july 1990 is found and subsequently modelled a non linear specification for the extended period is presented and discussed copyright 1999 john wiley sons ltd

the demand for m1 in the u s a 1960 1988 estimated u s m1 demand functions appear unstable regularly breaking down over 1960 1988 e g missing money great velocity decline m1 explosion we propose a money demand function whose arguments include inflation real income long term bond yield and risk t bill interest rates and learning curve weighted yields on newly introduced instruments in m1 and non transactions m2 the model is estimated in dynamic error correction form it is constant and with an equation standard error of 0 4 variance dominates most previous models estimating alternative specifications explains earlier breakdowns showing the model s distinctive features to be important in accounting for the data

an alternative approach to the american demand for money with a decade of evidence behind it the profession seems to have agreed on the fact that a structural break shifted the american demand for money shortly after 1973 it is difficult to pinpoint the source of the trouble precisely let alone to explain the event with an econometric model in their survey judd and scadding 1982 tentatively concluded that financial innovation is the source of the problem while this conclusion has not been universally accepted the instability of the money demand function is largely taken as a given stylized fact the primary goal of this article is to provide an alternative solution to the case of the missing money using the methods of hendry 1979 it should be stressed at the outset that as this paper deals with a problem in the applied literature it is unabashedly empirical in nature the paper attempts to explain an empirical difficulty without presenting a new theoretical model of money demand rather in the context of the standard transactions demand theory for narrow money a number of questions are analyzed with an atypical econometric model was there actually a shift or a series of shifts in the demand for money if not why have other investigators concluded that there was in fact a shift most importantly what function seems to be the most reasonable approximation to the data generation process during the period in question

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

australasian money demand stability application of structural break tests estimates of the demand for money provide important foundations for monetary policy setting but if the estimation technique does not explicitly account for structural changes then such estimates will be biased this paper presents an investigation into the level and stability of money demand m1 for australia and new zealand over the 1960 2009 period and demonstrates that both countries experienced regime shifts australia also experienced an intercept shift application of four time series methods provide consistent results with 1984 and 1998 break dates cusum and cusumsq stability tests reveal that m1 demand functions were unstable over the 1984 to 1998 period for both countries although tests for stability are not rejected thereafter

a small estimated euro area model with rational expectations and nominal rigidities abstract we estimate a small model of the euro area to be used for evaluating alternative monetary policy strategies starting with the relationship between output and inflation we compare the fit of the nominal wage contracting model due to taylor j political econom 88 1980 1 and the relative real wage contracting model proposed by buiter and jewitt the manchester school 49 1981 211 reprinted in buiter ed macroeconomic theory and stabilization policy manchester university press manchester 1989 and estimated with u s data by fuhrer and moore quart j econom 110 1995 127 while fuhrer and moore reject nominal contracts in favor of relative contracts which induce more inflation persistence we find that both specifications fit euro area data reasonably well when considering france germany and italy separately however we find that nominal contracts fit german data better while the relative contracting model does well with respect to formerly high inflation countries such as france and italy we close the model by estimating an aggregate demand relationship and investigate the implications of nominal versus relative contracts for the inflation output variability tradeoff when monetary policy follows taylor s rule

the behavior of money demand in the 1980s existing money demand functions did not predict the strength in m1 in the 1980s this strength derived from the combination of a change in the character of m 1 due to elnancial deregulation and the sharp fall in market rates that began in 1982 the public s m2 demand function however remains unaffected by the forces that altered the m1 demand function the character of the public s m 1 demand function changed with the legalization nationwide in january 1981 of the checkable deposits known as nows because nows pay explicit interest they are used by the public as an instrument for saving as well as for effecting transactions mehra 1986 the addition of nows to m1 therefore caused m1 to become more highly substitutible with the savings instruments included in the non ml component of m2 that is savings deposits small time deposits money market deposit accounts mmdas and money market mutual funds of noninstitutional investors mmmfs furthermore financial institutions move the rate paid on nows only sluggishly in response to changes in market rates in contrast the rates paid on small time deposits mmdas and mmmfs move promptly in response to changes in market rates consequently when market rates fell beginning in late summer 1982 the differential between the rates paid on the non ml components of m2 and on nows fell sharply the public then substituted out of the non ml components of m2 and into the nows in m1 these substitutions increased m1 de

money demand the effects of inflation and alternative adjustment mechanisms the paper first reconciles a variety of specification tests for partial adjustment money demand models and points out a fundamental identification problem which makes it impossible to distinguish between the real and nominal partial adjustment models if inflation has an independent effect on the long run demand for money the paper also finds that empirical estimates of simple partial adjustment models have some undesirable properties and then considers the shortand long run effects of inflation in a more general distributed lag model

money and inflation in the euro area a case for monetary indicators abstract this paper examines inflation indicators for the euro area by studying the relationship between inflation output money and interest rates using data spanning 1980 2001 the central finding is that both the output gap and the real money gap the difference between the real money stock and the long run equilibrium real money stock contain considerable information regarding future inflation in contrast the eurosystem s money growth indicator the difference between nominal money growth and a reference value the prominent first pillar in its monetary strategy contains little information about future inflation and no information beyond that contained in the output and real money gaps the predictive performance of the output gap has improved compared to that in a previous version of this paper most likely because of better estimation methods

on the aggregation of eurozone data abstract constructing eurozone aggregates is common practice in empirical studies this study shows that the choice of aggregation method does not only matter on a theoretical basis a brief study on eurozone money demand indicates the empirical importance of choosing the correct aggregation method as different aggregates give substantially different outcomes

effects of global liquidity on commodity and food prices summary this article investigates the relationship between global liquidity and commodity and food prices applying a global cointegrated vector autoregressive model we use different measures of global liquidity and various indices of commodity and food prices for the period 1980 2011 our results support the hypothesis that there is a positive long run relation between global liquidity and the development of food and commodity prices and that food and commodity prices adjust significantly to this cointegrating relation global liquidity in contrast does not adjust it drives the relationship

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

wage changes and job changes of canadian women the paper employs data from the 1986 87 labour market activity survey to investigate empirically how the wage rates of female paid workers in canada change when they change jobs in particular whether canadian women realize short run wage gains from job mobility following mincer 1986 we estimate the short run wage gain to job mobility by comparing the between job wage changes of current period job movers with the on the job wage growth of next period job movers the findings indicate that canadian women who changed jobs in 1986 realized short run wage gains of 8 9 percent and that women who quit their first job for nonpersonal job related reasons realized substantially greater wage gains than did women who quit for personal reasons were laid off or separated for other reasons

constructing historical euro zone data existing methods of reconstructing historical euro zone data by aggregation of the individual countries aggregate data raises numerous difficulties especially due to past exchange rate changes the approach proposed here is designed to avoid such distortions and aggregate exactly when exchange rates are fixed we first compute growth rates within states aggregate these then cumulate this euro zone growth rate to obtain the aggregated levels variables the aggregate of the implicit deflator plice index coincides with the implicit deflator of our aggregate nominal and real data we apply the method to euro zone m3 gdp and prices over the previous two decades 1 background with the introduction on 31 december 1998 of the irrevocably fixed euro exchange rates eleven countries of the european union entered a new monetary union from that date onwards monetary policy for these countries is set by the newly formed european central bank ecb the governing council of the ecb bases its monetary policy on medium term assumptions regarding real gdp growth and the trend decline in the velocity of circulation of m3 ecb 1999a p 40 therefore the construction of historical data for aggregate m3 and gdp for the euro zone is of practical relevance to policy makers in addition any econometric model for euro zone countries requires such historical data this paper describes an approach to doing so from the aggregate data of the individual member states a number of previous reconstructions are noted but as these have important drawbacks an approach related to that in t6rnqvist 1936 is proposed and its properties are discussed although there have been many important contributions to index number theory see section 4 few are directly relevant to the problem confronted here where we wish to use the national aggregates from member states not the individual item data usually input into index calculations to construct a euro zone aggregate moreover the inherently non stationary nature of those national aggregates both from unit roots inducing integrated time series

price expectations and the demand for money resolution of a paradox in his restatement of the quantity theory of money milton friedman 1956 argued that physical goods should be regarded as a substitute for money and that higher expected rates of inflation should induce a portfolio shift from money to physical assets as friedman has derived his equation the demand for real balances is a function of the expected rate of inflation in addition to nominal rates of interest wealth and real income p 58 equation 11 this also has been the approach of many applied studies for example valentine 1977 p 747 concludes the fact that the anticipated rate of inflation has an effect on the demand for money which is additional to its effect through its influence on the nominal interest rate provides support for friedman s view of the demand for money emphasis mine there is of course likely to be some degree of substitution between physical goods and wider definitions of money which is the definition friedman envisages it is difficult to believe however that the demand for narrowly defined money mi which is used primarily for transactions balances should be terribly sensitive to moderate expected rates of inflation certainly from theoretical considerations in transactions demand models of the tobin baumol variety there is no role for the expected rate of inflation other than via interest rates herein lies the paradox whilst theory and common sense seem to dictate that expected or actual inflation play little role in the demand for narrow money a number of studies for different countries have reported the opposite these include shapiro 1973 and goldfeld 1973 for the united states smith and winder 1971 for canada and adams and porter 1976 juttner and tuckwell 1974 and valentine 1977 for australia this paper reconciles theory and evidence by showing that with more appropriate specification of previous studies the expected or actual rate of inflation is redundant and not significant those models use either a partial adjustment mechanism or an expectations formation mechanism in real terms it is shown below that this equation is rejected relative to one in which the expectations and adjustments are in terms of nominal variables this nominal specification was pointed out by goldfeld 1973 and hafer and hein 1980 who selected the nominal version on the basis of within sample errors following a description of the real adjustment models in the next section section iii shows this selection of the nominal version more rigorously on the basis of a likelihood ratio test more importantly it is shown that this test of superiority of specification is identical to the test that the rate of inflation exerts no independent influence on the demand for money these tests are carried out in section iv since empirical studies of this question use both the actual and expected rates of inflation the results of those authors using the expected rate of inflation are examined in section v in all cases the strategy has been to replicate those models as closely as possible to see if their conclusions are upheld under more appropriate specifications and in all cases these conclusions are not upheld the aim of the paper is not to suggest new or appropriate expectations formations or to exhaust all possible ones but to test those on which previous conclusions are based the aim is twofold to point out the duality of the appropriate real vs nominal test procedure with the test of significance of the rate of inflation and to show that the conclusions of previous studies regarding the independent effect of the rate of inflation on transactions balances are due to an incorrect specification and interpretation

does the euro follow the german mark evidence from the monetary model of the exchange rate abstract this paper investigates whether german or synthetic european pre emu data provides the appropriate empirical basis for evaluating euro dollar exchange rate behavior monetary exchange rate equations are estimated for both data sets over the pre emu period and out of sample forecasts are evaluated to assess their ability to explain the euro dollar exchange rate from 1999 to 2004 while forecast accuracy tests confirm the usefulness of synthetic european data for euro exchange rate analysis forecasts based on the german pre emu experience cannot even beat a random walk our results indicate that the euro does not simply follow the german mark but that it has its origins in the other pre emu currencies as well

euro area money demand and international portfolio allocation a contribution to assessing risks to price stability this chapter argues that a stable broad money demand for the euro area over the period 1980 2011 can be obtained by modelling cross border international portfolio allocation we first observe that in this first decade of the new millennium the breakdown of standard money demand specifications for the euro area and the strong developments in annual m3 growth coincide with large net flows in portfolio invest ment in the euro area we then estimate a new money demand which turns out to be stable by including variables explaining portfolio flows omitted in the traditional specifications

dynamic risksharing in the united states and europe abstract we use a panel var model to improve upon the existing methodologies to analyze interregional risksharing and consumption smoothing channels first we endogenize the output process within a more general multi equation framework capturing the dynamic feedback between output and various smoothing channels second in line with dynamic general equilibrium open economy models of risksharing we exploit impulse response functions to trace the role of each smoothing channel over time in the presence of different structural shocks temporary vs permanent and output vs smoothing channels in the application to the us and oecd countries we find different dynamic properties of different smoothing channels we compare our results with the predictions of standard risksharing and consumption theories and tackle some of the puzzles in the literature such as the international risksharing puzzle and the consumption output correlation puzzle we are also able to address such policy issues as whether fiscal stabilizers have been substitutes or complements for financial market diversification activities and whether further financial market integration is likely to provide countries with more shock absorption tools a key result is the strong substitutability between capital and credit smoothing in the us and between fiscal and credit smoothing in the oecd

the demand for money in brazil what happened in the 1980s abstract some of cardoso s 1983 money demand specifications are used here the estimates are based on quarterly data for the period 1966 1985 it is shown that due to financial innovation the money demand function shifted downwards in the 1980 s also a comparison is made between the actual demand for money and that predicted by the model during the period in which the economic reforms of the cruzado plan were in force

international money supply and real estate risk premium the case of the london office market abstract the main purpose of this study is to deeply investigate the determinants of the risk premium for the central london market between q2 2002 and q3 2015 using a vector autoregression var model we shed new light on the role of central banks in the historical level of the commercial real estate risk premium indeed since the global financial crisis gfc central banks have used unconventional monetary policies increasing the quantity of money available in the economy and creating structural changes therefore we have described the link between monetary policies and real estate using a theoretical is lm mundell fleming framework for a small open economy with a flexible exchange rate to empirically explore this phenomenon we have constructed a monetary index adapted to the office market we find that throughout the whole period 2002 2015 the vacancy rate the employment in services the ftse 100 the new monetary index and the autoregressive parameter are the main determinants of the historical risk premium however this result hides the complex realities of different sub periods finally we study the structural changes introduced by the monetary policy using a structural var model and impulse response function

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 demand for m3 in the euro area in this paper an empirically stable money demand model for m3 in the euro area is constructed starting with a multivariate system three cointegrating relationships with economic content are found i the spread between the long term and the short term nominal interest rates ii the long term real interest rate and iii a long run demand for broad money m3 there is evidence that the determinants of m3 money demand are weakly exogenous with respect to the long run parameters hence following a general to specific modelling approach a parsimonious conditional error correction model for m3 money demand is derived which can be interpreted economically for the conditional model long run and short run parameter stability is extensively tested and not rejected copyright 2001 john wiley sons ltd

demand for money and expected inflation the role of the expected rate of inflation in the demand for money has been highly controversial both at the theoretical and the empirical level this note critically discusses these issues and puts forward a hypothesis accounting for the significance of expected inflation in money demand equations which is corroborated by an empirical investigation of the italian experience particularly suited for this specific experiment

exchange rate predictability and monetary fundamentals in a small multi country panel in this paper a panel of vector error correction models based on a common long run relationship is utilized to test whether the euro exchange rates of canada japan and the united states have a long run link with monetary fundamentals we use both exchange relationships relative to the full emu area with synthetic aggregates for the pre emu period and relative to germany solely compared to existing cointegration frameworks our approach provides more evidence that the aforementioned exchange rates are consistent with a rational expectations based monetary exchange rate model based on a common long run relationship albeit with a long run impact of relative income that is higher than predicted by the theory as a next step we analyze the out of sample fit of this common long run exchange rate model relative to naive random walk based forecasts these forecasting evaluations indicate that the monetary fundamentals based common longrun model is superior to both random walk based forecasts and standard cointegrated var model based forecasts especially at horizons of 2 to 4 years

how much has labour taxation contributed to european structural unemployment abstract we analyse the effect of labour taxes on euro area unemployment making use of the blanchard and katz 1999 wage dynamics reconciling theory and evidence american economic review 89 2 69 74 nairu model we represent structural unemployment as that made up of two elements an observed part related to labour taxes plus a non stationary unobservable component related to the reservation wage and to the wage mark up contrary to empirical estimates available so far this modelling explicitly acknowledges the existence of non measurable factors responsible for the unemployment non stationarity for the period 1970 2004 we obtain a tax effect that lies in the middle of the estimates that can be found in the literature this study gives support to the view that lowering labour taxes can help to reduce unemployment in continental europe

modelling british interest rate adjustment an error correction approach an error correction model is used to capture the dynamics of british retail deposit and loan rate responses to changes in the central bank s base rate the test is conducted using a monthly series of interest rates for four generic retail banking products over the period 1986 93 the adjustment process is found to vary considerably between and within banks and products the results suggest that this market continues to exhibit many features of imperfect competition and that adjustment differences could affect the speed of the money transmission mechanism

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

m3 money demand and excess liquidity in the euro area recent empirical studies have found evidence of unstable long run money demand functions if recent data are used if the link between money balances and the macroeconomy is fragile the rationale of monetary aggregates in the ecb strategy has to be doubted in contrast we present a stable long run money demand relationship for m3 for the period 1983 2006 to obtain the result the short run homogeneity restriction between money and prices is relaxed and a break in the income elasticity of money demand after 2001 is taken into account measures of excess liquidity do not show significant inflation pressures

expectations and the quantity equation evidence from eastern european countries this article analyses the usefulness of the quantity equation from the financial market s view we use more than 10 000 forecasts of financial analysts concerning projections of the growth rate of money supply prices and real output for six central and eastern european countries to test whether they are internally consistent with the quantity equation in particular we report that forecasts are consistent with the quantity equation in high inflation countries and high inflation regimes

money demand function estimation by nonlinear cointegration conventionally the money demand function is estimated using a regression of the logarithm of money demand on either the interest rate or the logarithm of the interest rate this equation is presumed to be a cointegrating regression in this paper we aim to combine the logarithmic specification which models the liquidity trap better than a linear model with the assumption that the interest rate itself is an integrated process the proposed technique is robust to serial correlation in the errors for the usa our new technique results in larger coefficient estimates than previous research suggested and produces superior out of sample prediction copyright 2007 john wiley sons ltd

money demand in euroland abstract this paper explores the determinants of alternative monetary aggregates in euroland a sample consisting of quarterly data covering the 1980 1 1998 4 period is considered we are interested whether a conventionally defined money demand equation is stable in some aggregates as opposed to others both long run and short run relationships are considered in this paper overall the results indicate that broad narrow money demand in euroland is a stable unstable function of euroland wide income and interest rates

does global liquidity drive commodity prices abstract this paper tackles the question of whether a cross sectional perspective on monetary policy is capable of explaining movements in global commodity prices in this vein we contribute to the rich literature on global liquidity in two different ways on the one hand to achieve a global series in terms of common monetary policy shocks we propose a distinction between common and idiosyncratic factors across economies as proposed by bai and ng 2004 our second innovation stems from the consideration of a markov switching vector error correction model when analyzing time varying short run dynamics having identified the long run structure which includes a proportional relationship between commodity prices and global liquidity in the first step our results indeed show that the impact of a global liquidity measure on different commodity prices is significant and varies over time one regime approximately accounts for times where commodity prices significantly adjust to disequilibria while the second regime is characterized by either a weak or no commodity price adjustment the fact that global liquidity also reacts to disequilibria in a specific regime demonstrates the two way causality between monetary policy and commodity prices

disinflation shocks in the eurozone a dsge perspective we investigate the effects of disinflation policies on key macroeconomic variables using euro area data and structural vector autoregressions svars we identify disinflation shocks as the only shocks that drive nominal variables to a lower long run level we find that in the immediate aftermath of a disinflation shock the euro area enters in a persistent recession we use these dynamic responses to estimate a dsge model with imperfect information about the disinflation shock we find that both nominal and real frictions and monetary policy gradualism have played a prominent role in the recessionary effect of disinflation shocks conversely allowing for imperfect credibility does not yield a better fit except when we shut key model s frictions down

commodity prices and bric and g3 liquidity a sfavec approach this paper investigates the influence of liquidity in the major developed and major developing economies on commodity prices liquidity is taken to be m2 a novel finding is that unanticipated increases in the bric countries liquidity is associated with significant and persistent increases in commodity prices that are much larger than the effect of unanticipated increases in g3 liquidity and the difference increases over time over 1999 2012 bric liquidity is strongly linked with global energy prices and global real activity whereas g3 liquidity is not the impact of bric liquidity on mineral and metal prices is twice as large as that of g3 liquidity granger casualty goes from liquidity to commodity prices bric and g3 liquidity and commodity prices are cointegrated bric and g3 liquidity and global output and global prices are cointegrated we construct a structural factor augmented error correction sfavec model