is the price level tied to the m2 monetary aggregate in the long run a long run link between money and prices is evident for the united states since the korean war if the m2 measure of money is used and the velocity of m2 v2 is modeled as a mean reverting series this link between m2 and prices is the basis for a dynamic model of inflation that compares favorably in forecasting exercises with phillips curve and more typical monetarist approaches the behavior of v2 is examined from 1870 to the present providing a basis for reconsidering previous findings that v2 follows a random walk copyright 1991 by american economic association

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

the changing empirical definition of money some estimates from a model of the demand for money substitutes interest bearing checkable deposits are examined to test whether they should be included in measures of the u s money stock both divisia and traditional simple sum aggregates are constructed on the basis of tests for weak separability in a model of the demand for financial assets using nonparametric demand analysis we find that several groups of assets are compatible with aggregation theory we find empirical support for a narrow measure consisting of the components of current mia in tests based on a st louis equation and in terms of controllability a divisia aggregate performs better than the simple sum mia measure

the empirical relationship between money prices and income revisited this article investigates the relationship between sum divisia and monetary velocity money prices and income using the notion of granger 1969 causality this is achieved by evaluating empirically using dickey fuller unit root tests whether the macroeconomic time series under consideration are trend stationary or difference stationary and by conducting tests using three different ad hoc lag lengths 8 6 and 4 quarters as well as a statistically determined using akaike s 1969a b final prediction error criterion lag structure

measurement matters recent results from monetary economics reexamined inferences about the effects of money on economic activity may depend importantly on the choice of a monetary index because simple sum aggregates cannot internalize pure substitution effects this hypothesis is investigated by replicating five recent studies that have challenged an aspect of the conventional wisdom about the effects of money on aggregate activity in four of the five cases the qualitative inference in the original study is reversed when a simple sum monetary aggregate is replaced by a divisia index of the same asset collection the results are mixed in the fifth case

an admissible monetary aggregate for the united kingdom this paper evaluates the performance of a monetary aggregate that is constructed from principles of economic and index number theory results from tests for weak separability indicate that wholesale deposits should not be aggregated with other u k financial assets they currently are included however in broad monetary aggregates published by the bank of england financial asset groupings passing the weak separability tests then were aggregated using both simple sum and divisia weights in each case the divisia aggregates were more closely related to the growth of nominal gdp and had stable demand for money functions copyright 1991 by mit press

neoclassical consumer demand theory and the demand for money m friedman 1956 suggests that the demand for money should be analyzed in terms of consumer demand theory although often the interpretation of empirical results from studies using aggregate data appears to be in terms of the motives approach i e transactions precautionary and speculative motives the authors develop friedman s ideas within an explicit model of consumer theory and find that they provide a consistent framework for analyzing portfolio choice and offer greater insights into results from aggregate studies of the demand for money than the motives approach in particular the authors provide a new interpretation of the role of nominal interest rates inflation and a hicksian measure of wealth in the demand for money function copyright 1991 by royal economic society

the value of active investing can active institutional investors remove excess comovement of stock returns this study uses cremers and petajisto s 2009 method to separate active institutional investors from passive ones and shows that active investors can alleviate the anomalous comovement of stock returns focusing on 2 events linked to the excess comovement anomaly standard poor s 500 index additions and stock splits i find that if an event stock has more active institutional investors trading in the post event period the anomalous comovement effect disappears in contrast if an event stock experiences a massive exit of active investors this anomaly persists the exit of active institutional investors also results in a strong price synchronicity effect

the determinants of manufacturing inventories in the uk the authors examine the determinants of inventory holding by the u k manufacturing sector over the period 1968 89 they find that inventory levels respond positively to output and its conditional variance and negatively to the level of gearing tehnological innovation in the form of computerized inventory control leads to a fall in the stock output ratio epirical results for inventories are examined in a cointegration and a general to specific error correction model with conditional variances estimated using an arch framework a backward looking error correction model is found to outperform a forward looking model although the latter also provides a reasonable fit to the data copyright 1993 by royal economic society

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

the stability of the m2 demand function evidence from an error correction model this note presents an error correction model of m2 demand the chow test indicates that the m2 demand function is stable over the sample period 1953q1 to 1991q2 copyright 1993 by ohio state university press

non parametric tests of consumer behaviour the neoclassical model of consumer behaviour postulates that a consumer s choice behaviour can be described as deriving from utility maximization subject to a budget constraint one is then naturally led to ask what this model implies about observed behaviour this question has been addressed from two quite distinct approaches the first approach originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions involving the derivatives of the demand functions the second approach originating in the work of samuelson 1938 1947 1948 derives algebraic conditions on the demand functions implied by maximizing behaviour

the demand for m1 in the united states a reply to james m boughton using general to simple methods j m boughton 1993 develops an econometric model that fits almost as well as y baba d f hendry and r m starr bhs 1992 but differs in economic implications and dynamic adjustments he claims the new model is constant is not encompassed by bhs but does not encompass bhs he concludes that the new variables in bhs do not matter for fit or constancy the authors replicate boughton s findings but their simplification encompassing test confirms the importance of the novel variables in bhs and shows that bhs encompasses his model an explanation is offered for its constancy when previous studies suffered predictive failure

a strategic analysis of dual channel supply chain design with price and delivery lead time considerations abstract this paper extends the work of chiang et al 2003 by investigating how price and delivery lead time decisions affect channel configuration strategy under either the manufacturer owned or the decentralized mode we show the choice of channel structure depends on customer acceptance of the online channel and the cost parameters following a threshold policy in both forms of ownership we prove that the strategic use of direct marketing to mitigate the double marginalization the major finding in chiang et al 2003 still holds even in this general situation moreover pareto zone exists where both manufacturer and retailer outperform their counterparts in the traditional indirect channel only case thus indicating that mitigating double marginalization may bring mutual benefits we also compare pricing and delivery lead time decisions between different forms of ownership or between different channel structures under the same form of ownership the manufacturer adopts a slow down deliver later approach and speeds up delivery to serve customers with a higher sensitivity to delivery lead time when he owns the whole indirect channel but chooses to stay fast and brag about better services and surprisingly slows down the speed of service when customers are more sensitive to delivery lead time due to the internal competition between two channels in the decentralized mode

the demand for divisia money in the united states a dynamic flexible demand system this paper applies the anderson and blundell 1982 approach to the analysis of the demand for money and attempts to establish the nature of the relationship between divisia money defined from narrow to broad and the nested like assets at different levels of aggregation this is achieved by conducting the analysis within a microtheoretical framework utilizing the demand system approach and by estimating a sequence of nested dynamic specifications and performing tests of the nested structures as well as on economic theory to establish the most restrictive dynamic specification acceptable to the data copyright 1991 by ohio state university press

the demand for money a dynamic rational expectations model macroeconomic modelling generally has widely adopted the use of forwardlooking variables in behavioural relationships studies of the demand for money being something of an exception the aim of this paper is to provide preliminary empirical results of a model which explicitly incorporates expectations of the future into the demand function for narrow money the approach adopted is the modelling of the demand for money within a multi period costs of adjustment framework under the assumption of rational expectations agents are assumed to pursue a target or long run level of money balances which is itself a function of prices income and interest rates this results in an empirical specification which consists of both backwardlooking and forward looking components the model is estimated using uk data for the period i963i i983iii the remainder of the paper is divided into four sections in section i we outline the framework in which our model is derived in the following section we discuss the econometric techniques used and in section iii we present our empirical results a final section concludes

the price is right but are the bids an investigation of rational decision theory the television game show the price is right is used as a laboratory to conduct a preference free test of rational decision theory in an environment with substantial economic incentives it is found that contestants strategies are transparently suboptimal in response to this evidence simple rules of thumb are developed that are shown to explain observed bidding patterns better than rational decision theory further learning during the show reduces the frequency of strategic errors this is interpreted as evidence of bounded rationality finally there is no evidence that a concern for fairness significantly alters bidding behavior copyright 1996 by american economic association

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

a theoretical derivation of the functional form of short run money holdings this paper considers the short run adjustment of money holdings towards their desired levels a rationale for short run money holdings is given which allows for uncertainty in cash flows and it is shown how the adjustment to desired money balances will occur following a change in some of the economic variables the model generates a particular form for the short run demand for money function which is shown to be econometrically superior to the standard ad hoc formulation the chief theoretical novelty is the derivation of the appropriate transient probability density of money holdings

monetary anticipation and the demand for money in the u k testing rationality in the shock absorber hypothesis the carr darby shock absorber hypothesis that unanticipated changes in the money supply cause changes in real balances but anticipated changes have a unit impact on the price level and therefore leave real balances unchanged is tested using two step and joint estimation techniques for the u k two step methods appear to support the shock absorber hypothesis but the superior joint estimation technique decisively rejects the hypothesis particularly the implicit rational expectations cross equation restrictions

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

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

why do so few hold stocks the authors investigate why 75 percent of u s households do not hold stocks despite the equity premium and predictions of expected utility models the question is relevant for privatization asset pricing and tax progressivity issues they show that risk aversion per se heterogeneity of beliefs habit persistence time nonseparability and quantity constraints on borrowing do not account for the phenomenon a wedge between borrowing and lending rates and minimum investment requirements are plausible but empirically weak factors more promising explanations are inertia and departures from expected utility maximization there is also qualified support for nondiversifiable income risk as a contributing factor copyright 1995 by royal economic society

credit cards and money demand a cross sectional study this study investigates credit card holding and the household demands for several monetary assets in a simultaneous equations framework it exploits the detailed data on household assets as well as demographic and preference characteristics in the 1983 survey of consumer finances a key finding is that consistent with theory a higher probability of credit card ownership implies lower demand for transaction balances with no effect on small time deposit balances copyright 1995 by ohio state university press

divisia aggregation and substitutability among monetary assets in this paper the authors estimate the degree of substitutability among the services of money checkable deposits savings deposits and time deposits in a quasi homothetic translog utility framework for canada the four composites mentioned are formed by aggregating more basic assets such as checkable deposits at banks checkable deposits at trust companies etc traditionally the simple sum aggregation has been used in this context the authors investigate both this alternative and divisia aggregation of the assets they find a low degree of substitution among the services of monetary assets and provide some evidence favoring divisia aggregation over simple sum aggregation copyright 1986 by ohio state university press

disequilibrium buffer stock models a survey abstract this paper surveys the growing literature on buffer stock models of the monetary transmission process the first part indicates the basic issue of how assumed exogenous changes in the money supply work their way through the economic system via disequilibrium in the money market after a brief historical development buffer stock models are divided into four types depending upon whether the disequilibrium arises in stocks and or flows and to whether changes in the money stock are purely exogenous the empirical implications including how buffer stock models explain the recent behaviour of money demand functions are given theoretical and empirical criticisms of the models are presented in terms of the classification system the survey concludes that whilst the buffer stock notion is an interesting idea the current models do not lend themselves to empirical testing and those models which do have performed poorly

the failure of competition in the credit card market the bank credit card market containing 4 000 firms and lacking regulatory barriers casually appears to be a hospitable environment for the model of perfect competition nevertheless this article reports that credit card interest rates have been exceptionally sticky relative to the cost of funds moreover major credit card issuers have persistently earned from three to five times the ordinary rate of return in banking during the periods 1983 88 the failure of the competitive model appears to be partly attributable to consumers making credit card choices without taking account of the very high probability that they will pay interest on their outstanding balances copyright 1991 by american economic association

the demand for money and goods in the theory of consumer choice with money when monetary balances are introduced into the consumer s utility function and budget constraint the resulting demand functions for money and for the consumption goods in general do not exhibit the standard slutsky hicks properties many researchers have studied this issue and have attempted to remedy the outcome for example see m morishima 1952 c lloyd 1964 1971 j hadar 1965 and dusansky kalman 1972 1973 their paramount goal has been to provide a neoclassical integration of money demand and consumer choice theory that will yield the traditional testable demand predictions that are the hallmark of neoclassical microeconomic theory the most recent work on this subject is by samuelson sato 1984 they convincingly demonstrate that with a weakly separable utility function it is possible to reinstate symmetry and negative semidefiniteness and to generate testable predictions in this paper however i show that these predictions are not those of traditional theory but a modification of them having alternative implications for example the assumption of a non inferior good is no longer sufficient to ensure a downward sloping own demand curve the problem is that the weak separability assumption is not sufficient to recover the traditional properties i present an alternative class of utility functions for which the commodity demand functions do exhibit the usual slutsky hicks properties this result also holds for money demand i implications of the sanuelson sato results

the conduct of monetary policy nowadays the central bank of a country is the monopoly supplier of legal tender currency the commercial banks are committed to making their deposits convertible at par into such currency so the banks need to keep reserves in the form of currency and deposits at the central bank the central bank primarily conducts its policy by buying and selling financial securities e g treasury bills or foreign exchange in exchange for its own liabilities i e open market operations academic economists generally regard such operations as adjusting the quantitative volume of the banks reserve base and hence of the money stock with rates prices in such markets simultaneously determined by the interplay of demand and supply central bank practitioners almost always view themselves as unable to deny the banks the reserve base that the banking system requires and see themselves as setting the level of interest rates at which such reserve requirements are met with the quantity of money then simultaneously determined by the portfolio preferences of private sector banks and non banks this difference in perceptions is discussed again in section iii whether the monetary policy operations of central banks should be viewed primarily in terms of quantity or rate setting actions though of course one is the dual of the other these had allowed inflation and inflationary expectations to become entrenched by the end of the i970s a selection of representative statistics for a number of the leading industrialised countries is given in table i below this table indicates a common pattern among the countries of interaction between interest rates inflation and the growth of output the first period i969 78 is marked by high inflation negative real interest rates and slightly above average growth the second period i979 82 by very high nominal and high real interest rates high but falling inflation and very low output growth the final period i983 7 is marked by much lower inflation lower nominal but still high real interest rates and a recovery in output growth in some cases to above average rates in contrast the relationship in these countries between the growth of their chosen key monetary aggregate and nominal incomes appears much weaker also see clinton and chouraqui i987 especially p 7 whether measured in terms of monetary growth or in terms of real interest rates i e after adjustment for prospective future inflation policy during the

the translog utility function and the demand for money in the united states in recent years considerable effort has been directed towards establishing the nature of the relationship between money and nearmonies but with mixed success the approaches vary from multi interest rate single equation studies to the careful simultaneous equations studies summarized and amended by feige and pearce 1977 and extended recently by donovan 1978 offenbacher 1979 and barnett 1980 the empirical results also vary with numerous studies favoring only one interest rate see the surveys in fisher 1978 1983 some claiming that a variety of entities are close substitutes for money e g chetty 1969 and others showing that weak substitution or even complementarity may be the result of the measurement of elasticities of substitution between money and a number of other assets e g feige and pearce 1977 offenbacher 1979 and barnett 1980 the debate seems to have overshadowed a second and equally intriguing issue which centers on the establishment of an acceptable definition of money the basic idea of this study is to take an approach that takes account of the different degrees of moneyness possessed by the various monetary assets this paper produces quantitative estimates of the degree of substitutability of other monetary assets for money in the context of a flexible functional form model with a

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

alternative approaches to analyzing economic data this paper compares two approaches to the analysis of economic data the exclusively econometric approach recommended by hendry and ericsson and the more eclectic approach that we employed in our books monetary history and monetary trends it concludes that the article by hendry and ericsson is mislabeled their article is not in any relevant sense an evaluation of our empirical model of u k money demand rather it uses one equation from our book as a peg on which to hang an exposition of sophisticated econometric techniques insofar as their empirical findings do bear on ours they simply confirm some of our principal results and contradict none jel 036 212

are perceptions of inflation rational some evidence for sweden this survey paper argues that walrasian markets and monetary exchan ge are alternative not complementary arrangements for coordinating economic activity that if one realizes this many informational anomalies and price rigidities that appear irrational in a walrasia n context can be understood as the outcome of maximizing behavior in a monetary economy and that the precautionary approach to modelin g the demand for money takes on a particular importance in this way of looking at things empirical evidence on the demand for money is cite d in support of this point of view which tends to reinstate the quantity of money as an important economic variable in contrast to the new classical vision of the economy whi ch downgrades money s importance this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

consumer theory and the demand for money the following sections are included introductionthe definition of moneythe microeconomic theory of a monetary economythe aggregation theoretic approach to money demandindex number theorythe links between aggregation theory index number theory and monetary theoryunderstanding the new divisia aggregatesthe optimal level of monetary subaggregationeconometric considerationsapproximating the monetary services subutility functionan exampleempirical dimensionsempirical comparisons of index numbersempirical results for the demand system approachextensionsconclusions this abstract was borrowed from another version of this item

money is what money does monetary aggregation and the equation of exchange this paper develops a method for distilling the transactions role of the array of monetary assets available to the public into a single aggregate measure of effective transactions balances the result is a monetary quantity index number designated mq which corresponds closely with the monetary aggregate contemplated in the equation of exchange mv pq in general mq and the conventional aggregate m 1 exhibit strikingly similar behavior however during episodes when the behavior of m1 is abnormal relative to income and interest rates mq behaves differently from m 1 during these periods anomalies in the behavior of mq are not detectable

relative prices in the uk personal sector money demand function nonparametric demand analysis is used in order to establish admissible monetary aggregates and also to establish a potential role for relative prices in the money demand function a conventional money demand specification is then contrasted with a money demand function which contains the relative prices of durables nondurables and services as additional regressors evidence from long run cointegration analysis short run error correction models and nonnested testing all confirm a role for relative prices in the u k personal sector s money demand function copyright 1996 by royal economic society