money growth output gaps and inflation at low and high frequency spectral estimates for switzerland abstract while central banks generally have abandoned monetary targeting many continue to attach weight to monetary aggregates in setting policy this raises the issue of how money can be combined with other variables when analysing inflation we decompose inflation in switzerland into two frequency bands and show that inflation is granger caused by monetary factors at low frequencies defined as those corresponding to periodicities of more than 4 years but is granger caused by the output gap at high frequencies we also estimate phillips curve models that are augmented by the low frequency components of the monetary factors

is inflation always and everywhere a monetary phenomenon using a sample of about 160 countries over the last 30 years we test for the quantity theory relationship between money and inflation when analysing the full sample of countries we find a strong positive relation between long run inflation and the money growth rate the relation is not proportional however the strong link between inflation and money growth is almost wholly due to the presence of high or hyper inflation countries in the sample the relationship between inflation and money growth for low inflation countries on average less than 10 per annum over the last 30 years is weak

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

on the low frequency relationship between public deficits and inflation summary we estimate the low frequency relationship between fiscal deficits and inflation and pay special attention to its potential time variation by estimating a time varying vector autoregression model for us data from 1900 to 2011 we find the strongest relationship neither in times of crisis nor in times of high public deficits but from the mid 1960s up to 1980 employing a structural decomposition of the low frequency relationship and further narrative evidence we interpret our results such that the low frequency relationship between fiscal deficits and inflation is strongly related to the conduct of monetary policy and its interaction with fiscal policy after world war ii copyright 2015 john wiley sons ltd

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

factors affecting levels and growth rates in the wage rates of women evidence from nursing using data from two surveys of nurses 1981 and 1989 the study examines the factors affecting the levels and growth rates in the wage rates paid to women especially married women who were licensed as registered nurses our results indicate that the influence of such household characteristics as marital status age and number of children and spouse s characteristic tended to diminish over the 1980s the evidence further suggests that the penalties for frequent switches in employment state were larger at the end of the decade than at the beginning further wages paid to nurses with baccalaureates were statistically the same as those paid to nurses with lesser formal education the return to the baccalaureate appears to be in the form of the higher wages and salaries earned by those who obtain post baccalaureate degrees

the effects of inflation on real interest rates one of the most obvious facts of recent monetary history is that high inflation is associated with high nominal interest rates this association has been interpreted by many as supporting a superneutrality hypothesis that an increase in inflation will not affect real interest rates in the long run however the bulk of the evidence contradicts superneutrality beginning with irving fisher 1896 1930 most empirical investigations have found that fully anticipated inflation has less than a unit effect on nominal interest rates and thus reduces real interest rates even in the longest of runs this has been shown under the assumption that expectations are formed rationally douglas pearce 1979 that they take the form of an arbitrary distributed lag on past inflation rates fisher 1930 william gibson 1970 or that they are accurately represented by the livingstone expectations data pearce kajal lahiri 1976 lawrence summers 1983 attempted to measure the long run effect without an explicit theory of expectations regressing long swings in various nominal interest rates against long swings in inflation over various subintervals from 1860 to 1979 he found coefficients consistently less than unity for the post world war ii era as a whole the coefficients were in the range of 0 5 to 0 75 with standard deviations of 0 08 to 0 33 a few studies have found coefficients close to unity william yohe and denis karnosky 1969 martin feldstein and otto eckstein 1970 gibson 1972 lucas but as several authors have observed thomas sargent 1976 robert shiller 1980 john wood 1981 summers these findings are limited to a particular period of u s history approximately 1953 71 furthermore even a unitcoefficient would contradict superneutrality of the after tax real interest rate which would require a coefficient substantially greater than unity even taking into account the other inflation distortions in the tax system summers calculated that the coefficient ought to lie in the range of 1 3 to 1 5 far higher than observed these empirical findings pose a challenge to traditional monetary theory much of which implies that superneutrality should hold at least approximately for example the model of miguel sidrauski 1967 implies that the real interest rate should equal the marginal product of capital which in the long run should equal the representative household s marginal rate of time preference if this rate of time preference is a constant then in particular it will be independent of the rate of inflation if it is positively related to the household s wealth or utility then inflation can reduce the marginal product of capital somewhat through what are commonly called mundell tobin effects that is higher inflation can reduce the demand for real balances which reduces real wealth which lowers the rate of time preference and leads to further capital accumulation 2 but this real balance effect on saving is commonly recognized to be too small to make department of economics social science centre university of western ontario london canada n6a 5c2 we are grateful to charles adams norman cameron john chilton jacob frenkel david laidler ben mccallum baldev raj brad reid jack weldon john whalley ron winrck and two anonymous referees for helpful discussions and comments on earlier drafts all errors are attributable to transaction costs robert lucas 1980 finds empirical support for the hypothesis which he calls one of the central implications of the quantity theory of money it has also been adopted by a wide range of more eclectic economists as evidenced by its endorsement in two of the most popular macroeconomics textbooks rudiger dornbusch and stanley fischer 1981 pp 454 58 robert j gordon 1978 pp 289 91 2these implications of variable time preference can be drawn almost immediately from the work of hirofumi uzawa 1968 a graphical analysis is presented by david laidler 1969b who focuses on the logically equivalent question of the effects of paying interest on money

some international evidence on the quantity theory of money this paper develops a two equation model of money interest rates and inflation based on the simple quantity theory an d fisher s hypothesis about nominal interest rates the model has both within equation and cross equation restrictions that are tested on long run average cross country data covering the period 1962 88 the major finding is that the restrictions cannot be easily rejected and this suggests that the behavior of interest rates and inflation in a major part of the postwar period can be understood in terms of classical monetary forces copyright 1993 by ohio state university press

inflation and asset returns sustained inflation is detrimental to long run growth and the financial system a recent theoretical literature suggests that high inflation implies low real returns on assets these low returns exacerbate informational frictions interfering with the functioning of financial markets and the allocation of investment we investigate the plausibility of an inverse relationship between inflation and real returns inflation and nominal equity returns are negatively correlated or uncorrelated for all low to moderate inflation economies examined safe nominal rates of return and inflation are only weakly positively correlated however for high inflation economies inflation and nominal returns are strongly positively correlated

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

a nominal theory of the nominal rate of interest and the price level this paper develops a simple theory of nominal income and interest determination under the assumption that the only relevant distinction between money and bonds lies in their holding periods individuals take full account of the government budget constraint and do not concern themselves with discounting future tax liabilities associated with the issue of government bonds according to this theory the price of bonds is analogous to the price level and the nominal rate of interest is determined by the bond money ratio and bears no close relationship to the rate of expansion of the price level

on the sources of macroeconomic stability in the euro area in the mid 1990s the euro area experienced a change in macroeconomic volatility around the same time at business cycle frequencies the correlation between inflation and money growth changed markedly turning from positive to negative distinguishing the periods pre and post 1994 we estimate a dynamic stochastic general equilibrium model with money for the euro area the model accounts for the salient facts we then perform several counterfactual exercises to assess the drivers of these phenomena the moderation of real variables was essentially due to relatively smaller shocks to investment wage markups and preferences the apparent lack of evidence for the quantity theory of money in the short run and the changes in the volatility of nominal variables resulted primarily from a more anti inflationary and gradual monetary policy

testing long run neutrality using intra year data previous tests of the long run neutrality hypothesis have generally relied on annual time series data this paper analyses the long run neutrality of money in australia using different sources of intra year data which permits an examination of the effects of seasonality and the robustness of previous empirical results a reduced form arima model is used with both quarterly seasonally unadjusted and adjusted australian real gdp and nominal money supply to test the neutrality hypothesis using two measures of money stock namely m1 and m3 it is shown that the hypothesis is supported using m1 as the measure of money supply while it is rejected using m3 recent trends and developments in the money and credit markets in australia provide a possible explanation of the sensitivity of the outcome to the measure of money stock employed in the analysis

the success of the fed and the death of monetarism i introduction there has been a significant reduction in the macroeonomic volatility in the u s economy during the last 20 yrs the standard deviation of the central bank s target variables like inflation and nominal gross domestic product gdp declined substantially however at the same time the standard deviation of monetary aggregates has increased 1 this unique macroeconomic phenomenon is also associated with the disappearance of correlation between inflation and money growth this is in contrast to the monetarist argument that suggests that an important cause of economic instability is excess variation in the growth rate of money the most famous monetarist prescription for monetary policy is milton friedman s proposal that the growth rate of money should be constant there is however no evidence of falling variations in the growth rate of money over the last 20 yrs in fact the standard deviation of the rate of growth of monetary base has increased from 1 63 during 1960 1982 to 3 1 during 1983 2003 milton friedman in an interview with taylor 2001 pointed out that there was a breakdown in the relationship between money and gdp after 1980 which came along with a dramatic reduction in the variability of growth rate of gdp friedman says i am puzzled about is whether and if so how they suddenly learned how to regulate the economy does alan greenspan have an insight into the movements in the economy and other shocks that the people don t have friedman further says it looks as if somehow in 1991 1992 they were able to install a good thermostat instead of a bad one is alan greenspan a good thermostat compared to other fed chairmen taylor 2001 there is widespread consensus on the effect of monetary policy on inflation in the long run however there is no consensus on how monetary policy affects real output in the short run there is now a consensus among economists that the original monetarist proposition that there is no long run trade off between inflation and unemployment is correct monetarism can also be viewed as the platform from which the rational expectation revolution took off however the monetarist proposition that economic fluctuation is caused by excessively variable monetary growth has largely been abandoned authors like estrella and mishkin 1997 and feldstein and stock 1994 find that monetary aggregates do not have a significant informational content after 1979 and hence cannot be used as an information variable for the stance of monetary policy their finding is also consistent with dwyer 2002 and dwyer and hafer 1999 who find that there is little correlation of inflation and money growth across countries on quarterly and annual bases after 1979 the literature finds significant correlation e g lucas 1980 between money growth and inflation in the pre 1979 period but this correlation has disappeared after 1979 see table 1 and figures 1 4 if stabilization policy makes inflation a constant then there will be no correlation between inflation and policy as no variable is correlated with a constant according to kochin 1973 if the monetary authority is able to stabilize the economy by optimally setting the variability of the control variables e g monetary aggregates and interest rate then there will be no correlation between the goal variable e g inflation and nominal gdp and the control variable even if the policy is not perfect if the policy is too variable and even if it is well timed then a countercyclical policy adopted by the central bank might lead to greater variability in the goal variable as argued by friedman 1953 poole 1993 1994 and tanner 1993 also argue that one predictable consequence of optimal monetary policy is that the correlation between monetary policy instruments and policy goals will be driven to zero poole further contends that it is obvious to any careful reader of theil 1964 that optimally variable policy will give rise to a zero correlation between policy and goal variable

on low frequency estimates of long run relationships in macroeconomics abstract a number of recent studies have attempted to test propositions concerning long run economic relationships by means of frequency domain time series techniques that concentrate attention on low frequency comovements of variables the present paper emphasizes that many of these propositions involve expectational relationships that are not inherently related to specific frequencies or periodicities thus the association of low frequency time series test statistics with long run economic propositions is not generally warranted that such an association can be misleading is demonstrated by analysis of examples taken from notable papers by geweke lucas and summers

returns to endogenous education the case of honduras the rapid expansion of the education sector in developing countries and the scarcity of public funds have increased the need for an accurate evaluation of educational policies estimates of rates of return to education have often been used as an integral part of cost benefit studies and programme evaluation efforts this study uses household survey data from honduras for 1990 to estimate returns to education that allow for worker heterogeneity and individual self selection in the education process a sequential estimation procedure is used that enables study of the interaction between educational attainment and earnings determination it is found that accounting for endogenous educational attainment leads to substantially higher estimated returns to education compared to traditional least squares estimates the possible magnitude of the bias underscores the importance of recognizing the role of self selection and comparative advantage in the education process

modelling natural resource scarcity using the error correction approach an error correction framework is used to test the long run hypothesis that prices of natural resources commodities in the united states exhibit scarcity properties from the late nineteenth century to 1988 in the sense that real resource commodity prices have been increasing or following a u shaped pattern introduced by m e slade 1982 the model is formulated to test the validity of the deflation procedure itself along with the scarcity properties results indicate that the model works well as a description of the long term behavior of resources prices and supports the u shaped version of the scarcity hypothesis in a majority of cases an error correction framework is used to test the long run hypothesis that prices of natural resources commodities in the u s exhibit scarcity properties from the late nineteenth century to 1988 in the sense that real resource commodity prices have been increasing or following a u shaped pattern slade 1982 the model is formulated to test the validity of the deflation procedure itself along with the scarcity properties results indicate that the model works well as a description of the long term behaviour of resources prices and supports the u shaped version of the scarcity hypothesis in a majority of cases

technology shocks in the new keynesian model in the new keynesian model preference cost push and monetary shocks all compete with the real business cycle model s technology shock in driving aggregate fluctuations a version of this model estimated via maximum likelihood points to these other shocks as being more important for explaining the behavior of output inflation and interest rates in the postwar u s data these results weaken the links between the current generation of new keynesian models and the real business cycle models from which they were originally derived they also suggest that federal reserve officials have often faced difficult trade offs in conducting monetary policy

the choice among monetary aggregates as targets and guides for monetary policy difficulties in meeting its monetary targets led the federal reserve in october 1979 to adopt a new operating procedure to achieve firmer control over monetary aggregates yet the inflationary environment has fostered financial developments that affect the behavior of the traditional monetary aggregates and that raise questions whether different aggregates may not be better this paper compares the various monetary aggregates for their usefulness as guides for monetary policy in the light of recent financial developments the criterion of usefulness is the ability to influence and predict gnp growth this ability is tested in two ways first by the stability of the velocities of the monetary aggregates and second by the advance information they provide of gnp growth it is presumed that the aggregates with the most stable velocities make the best targets for monetray policy and that those containing the most advance information make the best guides for policy the paper has three main sections the first discusses the criteria for using monetary aggregates as targets and guides the second two sections describe and report tests of the various monetary aggregates as targets and guides a summary of findings is presented as a final section

the monetary exchange rate model as a long run phenomenon abstract pure time series based tests fail to find empirical support for monetary exchange rate models in this paper we apply pooled time series estimation on a forward looking monetary model resulting in parameter estimates which are in compliance with the underlying theory based on a panel version of the engle and granger engle r f granger c w j 1987 co integration and error correction representation estimation and testing econometrica 55 251 276 two step procedure we find that the residuals of the panel based estimated monetary model are stationary this indicates that on a pooled time series level there is cointegration between the exchange rate and the macroeconomic fundamentals of this monetary model

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

long run purchasing power parity in the 1920s abstract this paper presents an empirical analysis of long run purchasing power parity ppp during the 1920s float using recently developed methodology on the cointegration of economic time series our results are generally supportive of ppp as a long run equilibrium condition on which exchange rates tended to converge over the period for dollar sterling however there is some evidence of a non stationary drift away from fundamentals during the last year or so before britain s return to the gold standard perhaps due to speculation our results also appear to reconcile some apparently conflicting evidence in the literature

testing the long run neutrality of money in a developing economy the case of india abstract seasonal integration and cointegration techniques are used to test the hypothesis of long run money neutrality using indian data on the basis of money real output and price level quarterly data empirical evidence is presented showing that money is cointegrated with prices but not with output at the zero frequency this evidence is interpreted to imply that money affects nominal but not real variables in the long run it is concluded that money is neutral in the long run

are tax effects important in the long run fisher relationship evidence from the municipal bond market are nominal bonds appropriately discounted for taxes empirical estimnates of the response of nominal interest rates to changes in inflation the fisher effect have failed to produce a definitive answer four reasons have been put forward as possible explanations i tobin effects ii fiscal illusion iii peso problems and iv different estimators utilizing data on taxable and tax exempt bond interest rates and several different estimators we find that the fisher effect estimates are always larger for the taxable bond relative to the tax exempt bond suggesting that fiscal illusion and different estimators cannot account for the previous results how economic agents respond to the tax burdens of assets with different tax treatment is an important issue at both the level of the individual micro and the aggregate economy macro one clear source of evidence would appear to be the market for high quality debt trading in both taxable and tax exempt debt occurs on a daily basis the response of the rates of return on taxable and tax exempt debt to changes in expected inflation are described by the fisher relationship the fisher relationship is one of the oldest equilibrium relationships in financial economics fisher s original proposition was that if the real rate of interest is relatively constant over time a fully perceived change in the purchasing power of money as proxied by the inverse of the rate of inflation would be accompanied by a proportional increase in the nominal interest rate darby 1975 points out that when nominal interest income is taxed as are interest payments on u s treasury bills the fisher relationship implies a response from nominal interest rates that is greater than the change in expected inflation in order to maintain the constant ex ante real interest rate summers 1983 suggests that given average marginal tax rates in the united states the appropriate value of the fisher effect is 1 3 to 1 5 for tax exempt bonds the original fisher specification should be a good approximation implying a fisher effect close to unity in a seminal paper fama 1975 presents evidence to support the hypothesis that changes in nominal

money output and inflation in the longer term major industrial countries 1880 2001 i introduction the empirical role of money growth in the macroeconomy has been studied by many researchers using different data and methods the most prominent studies focusing on the quantity theory of money are those of friedman and schwartz 1963 1982 using data averaged over the phases of the business cycle in order to capture longer run movements with u s and u k data back to 1867 the study by mccandless and weber 2001 is a representative example for a different approach for 110 countries in the post wwii period longer run growth rates are approximated by growth of a variable over a 30 year period average growth rates 1 the problem with phase averaging is that it does not deal with possible nonstationarity of the data 2 the problem with growth averages over long periods while informative to a degree is that they have limitations too it is impossible to assess the timing of movements in these variables 3 in the frequency domain the long run is associated with frequency zero which in our terminology is the long run trend previous studies in the frequency domain on the long run neutrality of money at zero frequency include the studies of lucas 1980 and geweke 1986 the theory of spectral analysis provides a rigorous framework for extracting specific frequency bands from the data instead of considering only frequency zero stock and watson 1998 applied the band pass filter of baxter and king 1999 to extract cycles frequency bands for u s data and focused on the business cycle and on mostly the post wwii period christiano and fitzgerald 2003 proposed an improved band pass filter and provided an application to the longer run relation of money and inflation for bands of 8 20 years and 20 40 years in the united states from 1900 to 1997 4 the usefulness of monetary aggregates for conducting monetary policy has been seriously called into question because of the instability of money demand a prominent empirical study is that of estrella and mishkin 1997 recent mainstream new keynesian models have no explicit role for money woodford 2008 a contrasting view is that the longer term role of money is still of relevance for monetary policy the european central bank explicitly emphasizes a supporting role that monetary aggregates should play in order to provide an anchor for inflation expectations hafer haslag and jones 2007 issing 2006 king 2002 nelson 2003 christiano motto and rostagno 2007 provided a theoretical new keynesian model where inflation expectations lose their anchor unless money is monitored and reacted to also beck and wieland 2008 presented a new keynesian model where cross checking with money growth movements improves inflation control similarly assenmacher wesche and gerlach 2006 2007 found a significant role for a low frequency low pass filtered component of money in the empirical new keynesian phillips curve equation 5 in the spirit of friedman 1961 we use long time spans so that our results are unlikely to be because of a specific policy rule in place in a given period we have 122 years of annual data from 1880 to 2001 before the introduction of the euro in 2002 we have real gross domestic product gdp money and consumer price indices cpis with no gaps for 11 industrialized countries 6 the countries included in our study differ in such terms as their institutions fiscal and monetary policies and economic growth rates nonetheless at least in peace time they were similar in generally having comparatively free markets in which prices and interest rates were determined our aim is to apply analytic methods that are free from economic and statistical models as much as possible in order to explore empirical regularities or stylized facts in the data also the focus of our research is the longer run we employ band pass filters to pick out cycles from each time series that last 8 40 years that is the longer term component

socioeconomic context family regimes and women s early labor market experience the case of colombia and venezuela abstract this paper compares the early labor market experience of mature and young cohorts of women in bogota and caracas the cross country cross cohort comparisons demonstrate the importance of both rising women s human capital and family regimes to women s labor market behavior while divorce was a central stimulus of women s work in both contexts the more stable patriarchal family regime in bogota more strongly conflicted with employment than the matrifocal and flexible pattern in caracas results also show important changes in the dynamics of female employment as younger cohorts exhibit more intermittent and unstable employment patterns

adaptive behavior and economic theory the relationship between psychological and economic views of behavior once a subject of heavy dispute is now understood in a very similar way by practitioners of both these disciplines and of our sister social sciences in general terms we view or model an individual as a collection of decision rules rules that dictate the action to be taken in given situations and a set of preferences used to evaluate the outcomes arising from particular situation action combinations these decision rules are continuously under review and revision new decision rules are tried and tested against experience and rules that produce desirable outcomes supplant those that do not i use the term adaptive to refer to this trial anderror process through which our modes of behavior are determined if one is interested in modeling particular decisions in any very explicit way it is obviously necessary to think about rather narrow aspects of an individual s entire set of decision rules his or her personality experimental psychology has traditionally focused on the adaptive process by which decision rules are replaced by others in this tradition the influence of the subject s or as an economist says the agent s preferences this essay uses a series of examples to illustrate the use of rationality and adaptation in economic theory it is argued that these hypotheses are complementary and that stability theories based on adaptive behavior may help to narrow the class of empirically interesting equilibria in certain economic models an experiment is proposed to test this idea

multi country evidence on the behavior of purchasing power parity under the current float abstract using panel data for the united states and 22 other oecd countries for the current float this paper presents evidence that despite substantial short term perturbations purchasing power parity actually performed much better than commonly believed average rates of growth of real exchange rates over long horizons bear little relationship either to average rates of growth of nominal exchange rates or to average inflation differentials thus implying a close to one to one relation between average rates of growth of nominal exchange rates and average inflation differentials panel data variants of standard unit root tests suggest that the real exchange rates of these countries can be characterized as mean reverting

the return of the liquidity effect a study of the short run relation between money growth and interest rates in this article i use band pass filters to investigate the short run relationship between money growth and interest rates i find a negative correlation between short run movements in money growth and interest rates which i interpret as evidence that the liquidity effect dominates the anticipated inflation effect

endogenous money or sticky prices abstract what explains the correlations between nominal and real variables in the postwar us data are these correlations indicative of significant nominal rigidity or do they simply reflect the particular way that monetary policymakers react to developments in the real economy to answer these questions this paper uses maximum likelihood to estimate a model of endogenous money this model allows but does not require nominal prices to be sticky the results show that nominal price rigidity over and above endogenous money plays a role in accounting for key features of the data

does global liquidity help to forecast u s inflation we construct a measure of global liquidity using the growth rates of broad money for the g7 economies global liquidity produces forecasts of us inflation that are significantly more accurate than the forecasts based on us money growth phillips curve autoregressive and moving average models the marginal predictive power of global liquidity is strong at three years horizons results are robust to alternative measures of inflation

commodity price shocks and the business cycle structural evidence for the u s this paper evaluates the relative importance of commodity price shocks in the u s business cycle therefore we extend the standard set of business cycle shocks to include unexpected changes in commodity prices the resulting svar shows that commodity price shocks are a very important driving force of macroeconomic fluctuations second only to investment specific technology shocks particularly with respect to inflation neutral technology shocks and monetary policy shocks on the other hand seem less relevant at business cycle frequencies neutral technology shocks rather play an important role at low frequencies

two illustrations of the quantity theory of money breakdowns and revivals by extending his data we document the instability of low frequency regression coefficients that lucas 1980 used to express the quantity theory of money we impute the differences in these regression coefficients to differences in monetary policies across periods a dsge model estimated over a subsample like lucas s implies values of the regression coefficients that confirm lucas s results for his sample period but perturbing monetary policy rule parameters away from the values estimated over lucas s subsample alters the regression coefficients in ways that reproduce their instability over our longer sample jel c51 e23 e31 e43 e51 e52 robert e lucas jr 1980 used near unit slopes of univariate regressions of moving averages of inflation and interest rates on money growth for the united states for the period 1953 1977 to illustrate two central implications of the quantity theory of money that a given change in the rate of change in the quantity of money induces i an equal change in the rate of price inflation and ii an equal change in nominal rates of interest lucas said that those two quantity theoretic propositions

backing the quantity theory and the transition to the us dollar 1723 1850 among the thirteen original colonies pennsylvania was most successful at issuing paper money with only minimal effects on prices so much so that the colony s experience is sometimes seen as violating the classical quantity theory of money quantity theorists usually attribute this apparent anomaly to mismeasurement of the money stock in contrast i use data on money prices and real activity in pennsylvania from 1723 to 1774 and for the united states as a whole from 1790 to 1850 when the money stock is better measured to show that the long run behavior of money and prices is well explained by the quantity theory in both periods despite the differences in institutional arrangements once growth in monetized transactions is taken into account this abstract was borrowed from another version of this item

the effects of money growth on inflation and interest rates across spectral frequency bands band spectral regression techniques are used to identify the frequency bands that are most important in the relationships between money growth and inflation and between money growth and the nominal interest rate the results show that cycles in the growth rate of m1 from one to two years long produce higher frequency cycles in inflation and two distinct sets of higher frequency cycles in changes in the nominal interest rate the results support models where predictable changes in money growth produce liquidity and anticipated inflation effects on nominal interest rates copyright 1994 by ohio state university press

two illustrations of the quantity theory of money of two central implications of the quantity theory of money that a given change in the rate of change in the quantity of money induces i an equal change in the rate of price inflation and ii an equal change in nominal rates of interest the illustrations were obtained by comparing moving averages of the three variables in question using quarterly u s time series for the period 1953 77 readers may find the results of interest as additional confirmation of the quantity theory as an example of one way in which the quantity theoretic relationships can be uncovered via atheoretical methods from time series which are subject to a variety of other forces or as a measure of the extent to which the inflation and interest rate experience of the postwar period can be understood in terms of purely classical monetary forces the theoretical background of the study is reviewed very briefly as it is familiar material in the next section the data processing methods are described and rationalized in section ii the illustrations

evidence of the fisher effect from u k indexed bonds newly available data from the u k market for indexed securities are used to test the fisher hypothesis for monthly observations of interest rates at 14 maturities the hypothesis that the after tax nominal interest rate is a constant plus anticipated inflation proves to be a reasonable approximation of reality for longer maturities the coefficients on the expected rate of inflation are approximately equal to one the mundell tobin effect is in evidence for shorter maturities the inverted fisher effect is in evidence for shorter maturities the inverted fisher effect is decisively rejected the evidence suggests that past difficulties encountered in trying to prove the fisher effect have been due to the lack of a direct measure of inflation expectations and real interest rates copyright 1992 by mit press

i discovered the peso problem irving fisher and the uip puzzle abstract irving fisher was the first economist to posit what has come to be known as uncovered interest parity relation he was also the first to offer a peso problem type explanation for important episodes in which it was violated after reviewing his theoretical and empirical work on this subject we go on to reexamine both his data and several other bodies two consisting of multi country panel data and a third consisting of a two century long time series for the united states and the united kingdom we find evidence in these data of the important role played by episodic phenomena in disturbing the uip relation like fisher we find that the influence of such phenomena dissipates over time over the long term these errors prove to be less important and uip receives empirical support