simultaneity and the demand for money in canada comments and extensions a recent paper by poloz 1980 examined the interesting issue of simultaneity with respect to the demand for money in canada the purpose of his paper was twofold 1 to demonstrate theoretically that the magnitude and direction of simultaneous equations se bias in the demand for money equation is variable depending upon the current economic environment and 2 to provide empirical support for this hypothesis using recursive ordinary least squares ols and instrumental variable iv estimation while arguing correctly that different economic environments may call forth different monetary policy instruments poloz presumed that his model and its error structure would remain constant under the different policy regimes consequently he did not consider how the endogenous and exogenous variables and hence the model itself might be affected in this paper we examine the issue of simultaneity by referring to appropriate policy variables which might be considered in different exchange rate regimes together with an analysis of the different systems of equations which might subsequently arise we argue that the direction and magnitude of bias where it does occur are empirical

interpreting an error correction model partial adjustment forward looking behaviour and dynamic international money demand an error correction model is derived from a stochastic dynamic programming problem incorporating rational expectations a parametric restriction is derived that allows a test for the theoretical proposition that the optimal strategy behind the error correction from entails the failure to asymptotically close the gap between the choice variable and the growing target this is accomplished by nesting a partial adjustment model with forward looking expectations within the error correction paradigm the counterintuitive behaviour embodied in the error correction model is not supported by the data in the context of a cross country comparison of cash balances relationships

multiple and pairwise non nested tests of the influence of taxes on money demand the minimal computational requirements of the linear embedding techniques initiated by davidson and mackinnon 1981 accommodate multiple and binary tests of autoregressive non nested regression models with different dependent variables the small sample adjustments of fisher and mcaleer 1981 effectively reduce the size of the p tests for our models our application to transactions demand for money models supports the holmes and smyth 1972 hypothesis that pre tax variables are preferred to gnp in m1 money equations

imitation and innovation driven development under imperfect intellectual property rights abstract developing countries employ about two fifth of the world s researchers originate one quarter of world expenditures on r d and their inventions are subject to imitation nevertheless the previous literature focuses on north south setups in which the south is restricted to imitating northern inventions to analyze the effects of ipr policies on developed and developing countries we extend this literature to allow not only for southern innovation and imitation of northern goods but also for imitation targeted at southern innovations we find the effects of iprs on r d and welfare to be non monotonic and dependent on innovation efficiency and an innovation threshold in the south for sufficiently strong iprs the south engages in original r d and stronger iprs promote southern innovation welfare and a reduction in the north south wage gap below the threshold a strengthening of ipr protection fails to promote innovation and decreases welfare stronger iprs exclusively for southern firms can benefit both regions by shifting southern resources from the imitation of northern goods to original southern innovation

north south trade with increasing product variety abstract we present a model of one way product cycles in international trade firms develop new product varieties in technologically advanced countries the north other firms copy these products in less developed countries the south and all shifts in production go from north to south what distinguishes this paper from the earlier literature are the model s implications for economic growth and wage determination economic growth is characterized by weak scale effects in contrast to the strong scale effects in the earlier literature the model can also account for large north south wage differences for plausible parameter values

equilibrium credit the reference point for macroprudential supervisors equilibrium credit is an important concept because it helps identify excessive credit provision this paper proposes a two stage approach to determine equilibrium credit it uses two stages to study changes in the demand for credit due to varying levels of economic financial and institutional development of a country using a panel of high and middle income countries over the period 1980 2010 this paper provides empirical evidence that the credit to gdp ratio is inappropriate to measure equilibrium credit the reason for this is that such an approach ignores heterogeneity in the parameters that determine equilibrium credit across countries due to different stages of economic development the main drivers of this heterogeneity are financial depth access to financial services use of capital markets efficiency and funding of domestic banks central bank independence the degree of supervisory integration and experience of a financial crisis countries in europe and central asia show a slower adjustment of credit to its long run equilibrium compared with other regions of the world

demand for housing attributes in developing countries a study of pakistan the paper has applied a conventional framework of analysis of implicit markets to determine the characteristics of demand for housing attributes of quantity and quality in the urban areas of a larg

the contribution of environmental amenities to low income housing a comparative study of bangkok and jakarta central and local governments and their creditors are increasingly interested in cost recovery for public services these strategies have two aims increasing revenues and making a better connection between benefits received and consumer bills this paper estimates a hedonic model for household level data in a rare contrast of slums in two asian mega cities to provide comparative information about how the poor value environmental amenities and basic infrastructure access the results suggest that slum housing prices do reflect differentials in public service access and that rough estimates of the value of access can be cheaply and usefully obtained for planning purposes

currency substitution and the demand for money some evidence for canada recently the possibility that foreign and domestic currencies are substitutes has received considerable attention see 1 2 3 10 19 21 currency substitution has important implications for the working of flexible exchange rates if the degree of currency substitution is high small changes in the money supply would induce large changes in the exchange rate furthermore currency substitution would transmit the effect of monetary disturbances from one country to another indeed significant currency substitution would seriously undermine the ability of flexible exchange rates to provide monetary independence this paper examines the empirical importance of currency substitution in the framework of the demand function for money if currency substitution is important the expected change in the exchange rate should be a significant determinant of the demand for home currency in section 2 we undertake such a test for the canadian demand for money during the recent flexible exchange rate period there is considerable evidence that the forward exchange rate is a good measure of the expected exchange rate our own tests confirm these results for canadian data since 1970

the search for a stable money demand function a survey of the post 1973 literature phe question of whether the demnand function for money is stable is one of the most important recurring issues in the theory and application of macroeconomic policy what is being sought in a stable demand function is a set of necessary conditions for money to exert a predictable influence on the economy so that the central bank s control of the money supply can be a useful instrument of economic policy as such the notion of a stable demand function appears to involve three key elements e g john t boorman 1976 p 317 and david e w laidler 1977 pp 34 35 first the demand for money relation should be highly predictable in a statistical sense as measured by the usual goodness of fit statistics precision of estimated coefficients and presumably its ability to forecast accurately out of sample second a stable demand function for money has relatively few arguments a relationship that requires knowledge about a large number of variables in order to pin it down is in effect not predictable finally the variables that appear as arguments in the function should represent significant links to spending and economic activity in the real sector in sum a stable demand function for money means that the quantity of money is predictably related to a small set of key variables linking money to the real sector of the economy the importance of a stable money demand function for monetary policy can be illustrated with the standard is lm model in which interest rates and gnp are the endogenous variables in this context a stable demand function for money translates into a well defined relationship between money interest rates and gnp

specification tests of the money demand function in an open economy this paper addresses empirically the issues of selecting the appropriate opportunity cost and scale variables of the money demand function in the presence of alternative nonnested hypotheses as part of the process of model specification the role of currency substitution in the demand for money function in an open economy is examined the tests are carried out with quarterly data from the open economy of greece over the floating exchange rate period 1975 82

nonfundamental uncertainty and exchange rates this paper shows that there can be equilibria in which exchange rates display randomness unrelated to fundamentals this is demonstrated in the context of a two currency one good model with three agent types and cash in advance constraints a crucial feature is that the type i agents for i 1 2 must satisfy a cash in advance constraint by holding currency i while type 3 agents can satisfy it by holding either currency it is shown that real allocations vary across the multiple equilibria if markets for hedging exchange risk do not exist and that the randomness is innocuous if complete markets exist

hedonic price functions and the measurement of preferences the case of swedish wine consumers abstract a hedonic price function for wine is estimated using swedish data 1989 1991 implicit prices for quality attributes are determined not from a regression of variety price on a vector of quality attributes but rather from a regression of quantity sold adjusted for weeks of availability on price and quality attributes such a reduced form is justified by the assumption that prices and attribute contents can be taken as exogenous to the swedish consumer price elasticity is estimated to be about 1 65 holding quality constant showing that swedish consumers are highly sensitive to price estimates of the implicit valuations of quality attributes are shown to differ greatly from those obtained from the more usual hedonic regression with price as the dependent variable

an analysis of the supply of housing characteristics by builders within the rosen framework abstract this paper presents parameter estimates of the builder s supply function for various new single family housing attributes rosen s implicit price model is employed using the now standard two step procedure a suggested econometric procedure that utilizes data from multiple time periods within a single market is implemented to eliminate the simultaneity problem the results indicate that marginal prices decrease with quantity for several dwelling attributes including dwelling size cost differences were also found between builders of different size and product specialization

an empirical analysis of the demand for housing attributes in a third world city this paper presents estimates of the demand for a set of housing attributes using data drawn from the renter and owner occupier housing submarkets for ibadan nigeria the empirical analysis based on an adaptation of rosen s two step model reveals that the most important determinants of the demand for housing attributes are income price of the attribute in question household size and the occupational status of the head of household the paper further indicates that the demand for housing attributes is inelastic since all estimated coefficients are below unity

imitation costs and patents an empirical study it has long been recognised that the costs of imitating new products have an important effect on the incentives for innovation in a market economy as arrow i962 and others have pointed out if firms can imitate an innovation at a cost that is substantially below the cost to the innovator of developing the innovation there may be little or no incentive for the innovator to carry out the innovation in their discussions of the innovation process economists frequently have called attention to the major role played by the costs of imitation but there has been little or no attempt to measure these costs to test various hypotheses concerning the factors influencing them or to estimate their effects in this paper we report some findings of what seems to be the first study of this topic in addition we present data regarding the effects of patents on imitation costs and on the rate of innovation

an empirical inquiry into the short run dynamics of output prices and exchange market pressure abstract in this paper we develop a short run disequilibrium model for the interaction of output prices and exchange market pressure in this model we consider the trade off between movements in exchange rates and movements in international reserves and we also incorporate and test purchasing power parity as a long run hypothesis the specification adopted preserves the properties of the monetary approach to exchange rates and the balance of payments in the long run the theoretical model is applied to the small open economy of greece for the period 1975 1981

a re examination of the demand for money in small developing economies this paper re examines the money demand function in three small open economies of asia korea pakistan and singapore in addition to using the relatively new procedure of error correction modelling the roles of variables such as a the expected change in the exchange rate b foregin interest rates and c foreign exchange risks on money demand are examined in testing the importance of these variables in the money demand function special attention is paid to testing the assumptions of the classical linear regression model the sample period for each country spans from 1973 1 through 1990 1 the empirical results suggest that the error correction specification performs very well in addition to the traditional variables the results suggest that at least some measure of foreign monetary developments appear to have some significant effect on money demand behaviour in these small developing economies

currency substitution capital mobility and money demand abstract this paper re examines the currency substitution cs issue by specifying a general portfolio balance pb model where domestic residents demand for foreign money is distinguished from their demands for foreign non monetary assets the latter possibility which reflects international capital mobility as opposed to cs per se is already a key feature in the open economy macro literature the inclusion of foreign money leaves the usual asset demand functions unchanged in the pb model that ignores cs at least as far as the appropriate rate of return arguments and their signs are concerned although this suggests that cs is of limited importance in macro modelling it implication for the estimation of money demand functions is pursued an initial attempt is made to empirically isolate the separate efects of high capital mobility and currency substitution for canada germany the united kingdom and the united states the results while not conclusive due to high multicollinearity problems bring into question the empirical as well as the theoretical relevance of currency substitution

competitive interest payments on bank deposits and the long run demand for money reply this paper tests two assumptions made in previous demand for money studies the first assumption concerns the role assigned to the interest rate in the demand for money function common practice identifies the rate of interest with the opportunity cost of holding money in section i this formulation is shown to blur an important distinction between the price of money and the price of money substitutes and to implicitly assume that the relevant price variable is the difference between these two distinct prices a second assumption is that the current ban on interest payments on demand deposits is fully effective in section ii i operationally define these price variables and estimate perfectly competitive interest payments on commercial bank deposits this is done by crudely measuring commercial bank marginal costs and assuming that all excess profit is passed on to depositors in indirect ways section iii presents estimates of a more complete longrun demand for money relationship which explicitly includes an own price and a cross price as separate influences and assumes that the prohibition of the payment of interest on deposits is totally ineffective although no firm conclusion is reached concerning the proper functional specification of the demand function the results significantly improve upon previous demand for money estimates which assumed that the interest payment prohibition is totally effective in section iv the results are summarized and implications of the analysis for monetary theory are presented my competitive demand for money formulation leads to a reinterpretation of the existing evidence on what is generally referred to as the interest elasticity of demand for money this estimate is shown to be significantly biased downward it also implies that the demand for and supply of money are more interdependent than is usually assumed

hedonic prices and the demand for housing attributes in a third world city the case of ibadan nigeria this paper estimates the demand functions for a set of housing attributes for the city of ibadan nigeria using rosen s two step estimation procedure the empirical results reveal that the most im