maximum likelihood and instrumental variable estimation of a consumer demand system for japan and sweden abstract working s model with a substitution term added is applied to annual per capita data of japan and sweden the model is estimated by ml and iv methods and the variability of the iv estimates is evaluated by means of bootstrap methods

instability of the u s money demand function this paper surveys the two major episodes of instability of the u s money demand function known respectively as the mystery of missing money and the great velocity decline it also assesses the recent literature on open economy money demand models and their usefulness in explaining the puzzling behavior of money demand manifested shortly after the transition to floating exchange rates copyright 1991 by blackwell publishers ltd

how trustworthy are the standard errors of translog coefficients abstract a simulation study indicates that the conventionally computed asymptotic standard errors of the ml estimates of the parameters of the indirect translog model underestimate the true variability of these estimates

some evidence on selecting an intermediate target for monetary policy the purpose of monetary policy is to influence the evolution of the economy this influence may be expressed in the oft heard phrases of reducing inflation promoting real economic growth and lowering unemployment these are the goals of policy action how are these goals to be achieved the federal reserve is limited in its power in that there are only a few policy vehicles over which it exercises dominance although the main policy instrument of the fed has differed over time during the past few decades fed policy has been exerted primarily through its control of the banking system s reserves via open market operations the difficulty faced by the policymaker is to know just what effect the changes in the instruments are having on the economy since data on the goal variables generally are received with a lag it is useful to find an intermediate variable that is more timely in its availability and that acts as a good proxy for the goal variable in other words changes in the intermediate variable should reliably predict changes in the goal measure if however a measure is unduly influenced by the goal variable then its usefulness in policy decisions is diminished greatly this is because movements in the intermediate measure might emanate from policy actions from changes in the goal measure or both for a measure to be useful as an intermediate target therefore it should have the feature of being exogenous or causally prior to the goal variable in addition to having minimal feedback from the goal measure the intermediate target measure also should respond predictably to changes in the direction of policy for example an intermediate target that responds randomly to changes in the policy instrument

the monetary multiplier when money is measured as a divisia quantity index abstract the traditional algebraic derivation of the monetary multiplier for conventional simple sum monetary aggregates is extended to cover the case of money defined as a divisia monetary quantity index thus the procedures developed by johannes and rasche for assessing the controllability of money can be applied to the issue of controllability of the divisia aggregates

real exchange rates preferences and incomplete markets evidence 1961 2001 many international macroeconomic models link the real exchange rate to a ratio of marginal utilities we examine this link empirically allowing the marginal utility of consumption to depend on government expenditure real money balances or external habit we also consider two environments with incomplete asset markets one with exogenously missing markets but an endogenous discount rate that anchors the distribution of wealth and one with endogenous market segmentation although none of these satisfies theoretical and over identifying restrictions for every country utility with external habit persistence provides the best match with real exchange rates for oecd countries between 1961 and 2001 jel classification f41 taux de change reels preferences et marches incomplets resultats 1961 2001 plusieurs modeles macroeconomiques internationaux lient le taux de change reel a un ratio des utilites marginales on examine ce lien empiriquement en permettant a l utilite marginale de la consommation de dependre des depenses du gouvernement des encaisses monetaires reelles ou des habitudes donnees on considere aussi deux environnements avec des marches incomplets pour les actifs l un avec des marches exogenes manquants mais un taux d escompte endogene qui ancre bien la repartition des revenus et l autre avec des marches segmentes endogenes bien que ni l un ni l autre ne satisfasse les imperatifs theoriques et les restrictions sur identifiees pour chaque pays l utilite avec les persistances d habitudes externes engendre l ajustement le meilleur avec les taux de change reels des pays de l ocde entre 1961 et 2001

discount window borrowing and federal reserve operating regimes i introduction the borrowing behavior of banks at the federal reserve s discount window is a component of most models of the monetary sector including the model used by the federal reserve 1 as several researchers have noted 2 however the policy importance of accurate predictions of borrowing behavior depends on the federal reserve s short run operating procedure if the federal reserve uses a federal funds rate target to control money growth as it did in the 1970s inaccurate predictions of borrowing behavior have no effect on money supply growth if the federal reserve uses a nonborrowed reserves target as is usually assumed for the october 1979 to october 1982 period or a borrowed reserves target as was used after october 1982 then poor predictions of bank borrowing are a potentially significant source of errors in controlling money 3 given the importance of accurate borrowing predictions to monetary control under current short run operating procedures admissions by the federal reserve that its borrowing equation poorly explains recent borrowing behavior are cause for concern 4 part of the problem may lie with inadequate allowance for differences in bank borrowing behavior under different operating procedures the choice of operating procedure determines not only the importance of accurate borrowing predictions but also affects borrowing behavior by affecting the stochastic process characterizing the spread between the federal funds rate and the discount rate 5 the standard model for aggregate borrowing typified by goldfeld and kane 1966 assumes a positive relationship between borrowing and the spread the optimizing model of individual bank borrowing decisions of goodfriend 1983 used by cosimano 1988 and dotsey 1989 among others suggests that borrowing also depends negatively on banks expectations about future levels of the spread specifically goodfriend s model of risk neutral banks predicts a larger impact on borrowing of a spread change that banks expect to be temporary than one that banks expect to be more persistent to the extent that banks predict future spreads using an autoregressive model changes in the stochastic process characterizing the spread should change the impact realizations of the spread have on borrowing 6 moreover if banks are risk averse changes in the operating procedures that produce less predictable spreads may affect both banks borrowing and excess reserve behavior 7 because the spread s stochastic behavior depends on the federal reserve s operating procedure borrowing behavior in turn should depend on the federal reserve s operating procedure consequently the federal reserve should not assume that the borrowing equation in its model is invariant to changes in operating procedure as goodfriend notes such an assumption is another example of the lucas critique bryant 1983 and dutkowsky and foote 1988 show that borrowing equations estimated during the period when the federal reserve targeted the federal funds rate produce poor forecasts of borrowing after the regime change of 6 october 1979 these papers do not however provide evidence on how the borrowing equation changed after october 1979 one purpose of this paper is to investigate whether bank borrowing behavior changed with changes in federal reserve operating procedures leading to estimated borrowing equations that differ significantly under different operating procedures in addition to the changes in operating procedures the federal reserve also changed the reserve accounting rules in february 1984 replacing lagged reserve accounting with contemporaneous reserve accounting although the effect of this switch on bank reserve management is difficult to predict the increased uncertainty about reserve needs and the decrease in information about the aggregate demand for reserves make it plausible that banks became more conservative affecting their excess reserve behavior and their discount window borrowing

the banking industry under uncertain monetary policy abstract the optimal loan decisions of banks are shown to be dependent on the banks rational forecast of the future federal funds rate which in turn is related to the policy rule used by the fed consequently a change in the policy of the fed will alter the reduced form model of the banking industry this result brings into question the fed s ability to predict and control the money stock under the procedure adopted by the fed between october 1979 and september 1982

empirical regularities in south african consumption patterns this article investigates a number of empirical regularities in the south african consumption patterns the data support the following empirical regularities 1 variability in consumption systematically exceeds the variability in prices 2 law of demand 3 income flexibility is about 0 5 4 engel s law and 5 the demand hypotheses demand homogeneity and slutsky symmetry are acceptable in contrast to the findings for a number of other countries another important empirical regularity that consumer s utility function is additive is rejected for the south african consumers based on the implied demand elasticity estimates from the preferred model it is found that food housing and medical care are necessities and clothing furniture transport and recreation are luxuries and demand for all the commodities are price inelastic

can the reserves approach to monetary control really work on october 6 1979 the board of governors bog of the federal reserve system announced that the federal open market committee fomc was abandoning its historical preoccupation with an interest rate approach to monetary control in favor of a reserve aggregate approach 1 underlying this new approach is the fact that at time t any money stock concept m is the product of a money multiplier m and a reserve aggregate r that is

liability and asset uncertainty for banks abstract models of bank behavior are developed which incorporate both deposit and loan demand uncertainty extensions of the traditional and simple deposit uncertainty model involve the inclusion of required reserves fixed penalty costs for reserve deficiencies limits on normal borrowing and uncertain spot loan demand and use of lines of credit results include normal borrowing limits as a new theoretical constraint on bank size and the existence of small fixed costs as a reason for the real world lack of deficient reserves policy conclusions include the effects of current reserve accounting and the effects of various interest rate changes

consumption and real exchange rates in dynamic economies with non traded goods abstract we examine the possibility that non traded goods may account for several striking features of international macroeconomic data large persistent deviations from purchasing power parity small correlations of aggregate consumption fluctuations across countries and substantial international real interest rate differentials a dynamic exchange economy is used to show that non traded goods in principle can account for each of these phenomena in the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates but we find little evidence for this relation in time series data for eight oecd countries

testing for linear and nonlinear granger causality in the real exchange rate consumption relation international real business cycle models predict a relationship between real exchange rates and consumption this prediction is not supported by the empirical literature in a new approach we apply nonlinear granger causality tests to data for 14 oecd countries

the behavior of money stock under interest rate control some evidence for canada a widely held view of interest rate control is that under this policy the demand for m1 determines the behavior of the stock of m1 an alternative view is that under interest rate control the supply function of m1 is the residual quantity determined by the banking system given the levels of bank credit and nontransaction deposits chosen by the nonbank public the authors find evidence in favor of the alternative view for the canadian case 1970 84 copyright 1987 by ohio state university press

model choice in consumer analysis taiwan 1970 89 expenditure data were used to study how income and prices influenced consumer demand in taiwan during the last decade alternative differential demand models combining the features of the rotterdam model and the almost ideal demand system aids were tested aids type demand responses describe taiwanese consumer behavior better than do the other specifications

a regional analysis of food consumption in spain abstract working s model of the engel curve is applied to food and staple food expenditures with two years spanish provincial data the functional form of working s model is tested against two other specifications and cannot be rejected the estimation results are quite comparable with those obtained by other authors we also find that spain has experienced a substantial change in the pattern of food consumption during the 1970s

short run monetary control evidence under a non borrowed reserve operating procedure abstract this paper examines two issues the prediction and short run control of the money stock associated with the experience following the federal reserve s adoption of a non borrowed reserve oriented operating procedure in october 1979 regarding predictability our analysis suggests that econometric models offer no improvement over the board s judgmental forecasting procedure in terms of a lower multiplier forecast error regarding the question of whether alternative operating targets would have lowered monthly variability in the money stock our findings suggest that neither a total reserve nor a monetary base operating target would have enhanced the precision of short run monetary control relative to a non borrowed reserve operating target

modelling the monetary multiplier and the controllability of the divisia monetary quantity aggregates fama eugene and richard roll some properties of symmetric stable distributions journal of the american statistical association 63 sept 1968 817 838 parameter estimates for symmetric stable distributions journal of the american statistical association 66 june 1971 331 338 friedman daniel and stoddard vandersteel short run fluctuations in foreign exchange rates evidence from the data 1973 79 journal of international economics 13 aug 1982 171 186 gnedenko b v and a n kolmogorov limit distributions for sums of independent random variables reading ma addison wesley 1968 international monetary fund international monetary fund survev various issues judge george g william e griffiths r carter hill and tsoung chao lee the theory and practice of econometrics new york john wiley and sons 1980 kendall maurice g and alan stuart the advanced theory of statistics 2nd edition vol i london charles griffin and co 1963 kindleberger c p the benefits of international money journal of international economics 2 sept 1972 425 442 mandelbrot benoit the variation of certain speculative prices journal of business 36 oct 1963 394 419 mcfarland james w r richardson pettit and sam k sung the distribution of foreign exchange price changes trading day effects and risk measurement journal of finance 37 june 1982 693 715 moulton westerfield janice an estimation of foreign exchange risk under fixed and floating rate regimes journal of international economics 7 june 1977 181 200 rogalski richard j and joseph d vinso empirical properties of foreign exchange rates journal of international business studies 9 fall 1978 69 79 roll richard the behavior of interest rates new york basic books inc 1970 schmidt peter econometrics new york marcell dekker inc 1976

an evaluation of alternative demand systems by means of implied income elasticities abstract working s model and the indirect translog model are compared and evaluated by means of the implied behavior of the income elasticities for two sets of data the effect of deleting observations is also discussed

bootstrapping for standard errors of instrumental variable estimates abstract theil and finke 1983 used the distance from the equator as an instrumental variable iv in the estimation of a cross country demand system here we obtain standard errors of the iv estimates using efron s 1979 bootstrap technique

evidence on purchasing power parity from univariate models the case of smooth transition trend stationarity recent research has found that trend break unit root tests derived from univariate linear models do not support the hypothesis of long run purchasing power parity ppp for us dollar real exchange rates in this paper univariate smooth transition models are utilized to develop unit root tests that allow under the alternative hypothesis for stationarity around a gradually changing deterministic trend function these tests reveal statistically significant evidence against the null hypothesis of a unit root for the real exchange rates of a number of countries against the us dollar however restrictions consistent with long run ppp are rejected for some of the countries for which a rejection of the unit root hypothesis is obtained

age trend and cohort effects in a macro model of canadian expenditure patterns a quadratic almost ideal demand system allowing for age cohort and trend effects is developed at the macro level the model is estimated by maximum likelihood using a three tier iterative search method applied to pooled 1961 1992 time series for five regions of canada and six categories of expenditure hypothesis tests indicate support for the model specification elasticities are compared with those reported in other studies with special attention to food effects of demographic and trend variables on elasticities and expenditure shares are investigated an overall conclusion is that such effects can be very important in a macro demand system

the model structure of discount window borrowing this article investigates the specification of discount window borrowing the author establishes empirically that the borrowing function is heteroskedastic and nonlinear subsequently he proceeds to propose a simple theoretical framework that generates endogenously these anomalies in particular the author demonstrates that such phenomena are precipitated by the response of depository institutions to discount credit rationing and federal reserve collateral limitations copyright 1991 by ohio state university press

a time series analysis of a demand system based on cross country coefficient estimates abstract annual dutch consumption data 1952 1977 for 10 goods which exhaust the consumer s budget are analyzed by means of a complete demand system whose coefficients are obtained from the cross country data collected by kravis 1982

forecasting the money multiplier and the control of money supply in egypt this article investigates whether money supply control through the multiplier monetary base framework is possible in egypt it was found that such a procedure would not have been possible between 1952 and 1990 when the financial needs of the egyptian government dictated changes in high powered money it was found that the aggregate forecasting approach of the money multiplier provided satisfactory results while the component method did not it is argued that changes in policy since 1991 would provide for better control over the monetary base and greater predictability of the money multiplier

replication in empirical economics the journal of money credit and banking project this paper examines the role of replication in empirical economic research it presents the findings of a two year study that collected programs and data from authors and attempted to replicate their published results the research provides new and important information about the extent and causes of failures to replicate published results in economics the findings suggest that inadvertent errors in published empirical articles are a commonplace rather than a rare occurence copyright 1986 by american economic association