interest rates and money in the measurement of monetary policy over the last 25 years a set of influential studies has placed interest rates at the heart of analyses that interpret and evaluate monetary policies in light of this work the federal reserve s recent policy of quantitative easing with its goal of affecting the supply of liquid assets appears to be a radical break from standard practice alternatively one could posit that the monetary aggregates when measured properly never lost their ability to explain aggregate fluctuations and for this reason represent an important omission from standard models and policy discussions in this context the new policy initiatives can be characterized simply as conventional attempts to increase money growth this view is supported by evidence that superlative divisia measures of money often help in forecasting movements in key macroeconomic variables moreover the statistical fit of a structural vector autoregression deteriorates significantly if such measures of money are excluded when identifying monetary

maintaining low inflation money interest rates and policy stance abstract this paper presents a systematic empirical relationship between money and subsequent prices and output using us euro area and swiss data since the 1960 1970s monetary developments unlike interest rate stance measures are shown to provide qualitative and quantitative information on subsequent inflation the usefulness of monetary analysis is contrasted to weaknesses in modeling monetary policy and inflation with respectively short term interest rates and real activity measures the analysis sheds light on the recent change in inflation volatility and persistence as well as on the phillips curve flattening and reveals drawbacks in pursuing a low inflation target without considering monetary aggregates

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

estimation of current quarter gross national product by pooling preliminary labor market data two methods of using labor market data as indicators of contemporaneous gross national product gnp are developed the establishment survey data are used by inverting a partial adjustment equation for hours a second gnp forecast can be extracted from the household survey by using okun s law using preliminary rather than final data adds about 2 to 4 percentage point to the expected value of the root mean squared errors and changes the weights that the pooling procedure assigns to the two forecasts the use of preliminary rather than final data results in a procedure that assigns more importance to the okun s law forecast

institutional change and the velocity of money a century of evidence we study common features in the income velocity of money income and interest rates for canada the u s the u k sweden and norway using annual data from 1870 the recently developed and refined techniques of testing for cointegration are employed the evidence suggests there is a unique long run relationship in velocity but not in income and interest rates moreover we find that only a model which includes institutional change proxies is properly specified we argue that the evidence is best interpreted in the context of common historical developments in the respective countries financial systems

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

spatial variations in new manufacturing plant openings some empirical evidence from greece fotopoulos g and spence n 1999 spatial variations in new manufacturing plant openings some empirical evidence from greece reg studies 33 219 229 this research deals with the determinants of regional variation in new plant openings in greek manufacturing industries over the period 1980 91 key findings of this first detailed attempt to do so in a greek context relate to the significant direct effects of regional specialization the extent of local production links and investment in public infrastructure on new manufacturing activity confirming research findings in other countries the results obtained here indicate small firm presence the local supply of skilled labour and wealth and labour productivity differentials across regions to be significant and positive influences on new firm formation fotopoulos g et spence n 1999 la variation geographique de la creation d entreprises industrielles quelques preuves empiriques provenant de la grece reg studies 33 219 229 cet article traite

financial technology shocks and the case of the missing m2 m2 growth was unusually weak in the early 1990s when its velocity soared although m2 growth subsequently recovered its velocity plateaued at a high level giving rise to a case of missing money these swings in m2 growth have accompanied opposite swings in bond mutual fund inflows m2 growth is better tracked and the missing m2 problem is resolved when money models are modified to account for shifts in bond mutual fund costs this approach avoids the capital gains and portfolio substitution problems posed by adding bond or equity funds to m2 while capturing the substitution effects relevant to money demand

money and prices evidence from the g7 countries this paper examines the exogeneity of money and prices within a money demand vector error correction model the exogeneity of the variables is central to several buffer stock models however the paper makes two modifications to the traditional approach the first is to explicitly acknowledge the importance of the supply of money function by including the function alongside its demand counterpart the second is to estimate the behaviour of the nominal sector and real sector simultaneously overall the results from the g7 countries suggest that the concerns raised by buffer stock models are relevant

alternative p models of inflation forecasts i introduction inflation forecasts play a key role in monetary and macroeconomics during the past three decades dramatic changes in the inflationary environment have stimulated a wealth of studies on the relative accuracy of alternative models of inflation forecasts in particular mehra 1988 stockton and glassman 1987 and reichenstein and elliott 1987 found varying performance in traditional models including the term structure phillips curve and typical monetarist models across postwar periods against this background hallman porter and small 1991 hps introduced a model called p star p sup as inflation forecasters holy grail the p sup framework is built on the general perception that inflation over the long run is a monetary phenomenon however as christiano 1989 argued p sup entails no practical implication for shorter run horizons that are of primary interest to inflation forecasters he further pointed out that for the period of 1970 89 one to three year ahead forecasts from p sup are not meaningfully more accurate than those from traditional models the usefulness of p sup as an anchor for the price level also suffers from another limitation the assumption that velocity which is the ratio of nominal gdp to a monetary aggregate is stable over the long run hps justified the validity of this hypothesis based on postwar 1955 88 data for the broad monetary aggregate m2 used in their model during the early 1990s however the growth rate of m2 apparently slowed down relative to that of gdp leading to a sharp rise in m2 velocity this consequently caused p sup to persistently underpredict actual inflation duca 1995a has provided a detailed discussion on plausible sources of this instability in velocity the literature has also offered plausible solutions to correct p sup models for the observed structural change ranging from redefining the relevant monetary aggregate to directly accounting for a trend break in velocity while evidence supports that these individual methods improve upon the original p sup formulation there is a lack of research comparing their performance especially in periods other than the early 1990s the first objective of the present study therefore is to fill this void the second objective of this paper is to reevaluate the robustness of earlier findings regarding the relative performance of hps s original p sup model to this end we divide the full out of sample forecast period of 1970 96 into three subsamples our results reveal a pattern of switching forecast performance between money based and output based models across recent periods the fragility of these models highlights the extent of temporal instability in the inflation generating process this paper proceeds as follows the next section describes alternative p sup model specifications and other inflation forecast models section iii discusses the forecast results section iv summarizes and concludes ii model specifications the p sup model the benchmark of the p sup model is the quantity theory of money which relies on the equation of exchange 1 p sub t equivalent to m sub t v sub t y sub t where p is the price level m is a measure of money supply v is the velocity of money y is the level of output real gdp and a time subscript denotes the current value of a variable it follows that if v sub t and y sub t reach their long run equilibrium levels at mathematical expression omitted and mathematical expression omitted respectively then the current equilibrium price level mathematical expression omitted can be determined as 2 mathematical expression omitted according to hps mathematical expression omitted is measured by the historical mean of v sub t and mathematical expression omitted by the level of potential gdp

start up complexity and the thickness of regional input markets start ups in different industry groups are classified according to their average complexity we find that thick regional input markets are conducive to start up activity in general and complex start ups in particular but that some inputs are more important than others

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

can we improve the perceived quality of economic forecasts a number of topics are discussed concerning how economic forecasts can be improved in quality or at least in presentation these include the following using 50 uncertainty intervals rather than 95 noting that even though forecasters use many different techniques they are all occasionally incorrect in the same direction that there is a tendency to underestimate changes that some expectations and recently available data are used insufficiently lagged forecasts errors can help compensate for structural breaks series that are more forecastable could be emphasized and that present methods of evaluating forecasts do not capture the useful properties of some methods compared to alternatives

dynamics of inflation in india a p star approach p star models have become increasingly popular in recent years in developed countries however data constraints have limited their applicability to the ldcs in this paper such a model is attempted for india using both annual and quarterly data for the period 1955 1995 it is found that velocity in india is trend stationary and using cointegration techniques it is then possible to develop a model to gauge inflationary pressures in the economy the model is well calibrated to data and in out of sample forecasts it significantly outperforms a seasonal arma benchmark model the velocity gap version of the model is particularly successful

the relevance of p star analysis to uk monetary policy recent articles have attempted to restore the use of a simple measure of the money supply as an indicator of future price levels p star and to reestablish a causal link from money to prices in this paper we argue that the p star approach is flawed it is certainly more complex than traditional monetarist approaches but the fundamental questions of causality are in no way either affected or resolved we argue that the p star relationship does not have a causal link with prices but rather the causality runs from prices to money we also find that there is some causality running from money to real income so that monetary conditions do seem to have some predictive power for future levels of activity copyright 1994 by royal economic society

new firm formation and regional economic development an introduction and review of the scottish experience this paper introduces this special edition ofsmall business economics on new firm formation and regional economic development it integrates the articles appearing in this volume with others presented at the economic and social research council urban and regional economics seminar group conference on this theme in january 1994 in ayr scotland many of the studies are derived from a scottish enterprise research programme on the contribution of new enterprises and entrepreneurs to economic development and the factors explaining the low levels of business start ups in scotland comparative data research and experiences from across the uk european union and us are called upon to improve the understanding of the processes involved the findings are sometimes unsuspected challenging the super structure of business development agencies and their attitudes and behaviour towards indigenous potential entrepreneurs

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

an augmented p star model of indian inflation abstractan augmented p star model is estimated and tested to identify the drivers of inflation in india the model includes monetary and non monetary factors demand pull and cost push factors and

do favorable land price policy affect renewable energy industry evidence from photovoltaics abstract renewable energy is necessary for sustainable social and economic development this is particularly so with global energy shortages the continuous deterioration of ecosystems and the environment as well as the world population explosion this article qualitatively and quantitatively analyzes the effects and problems of chinese favorable land price policy on photovoltaics in examining the favorable land price policy in china this study develops a multiple linear regression model to study the effects of favorable land price policy on photovoltaic power and photovoltaic industry data used in this research was mainly collected from 20 provinces in china it is found that the development of pv in china has been greatly affected by the favorable land price policy in the end it is highly recommended that favorable land price policy should be continued for renewable energy systemic deficiencies can be overcome through continual reform and innovation of mechanisms

inflation unemployment and duration abstract in tge earky 1990s core cpi inflation and employment cost inflation have been overpredicted by phillips curve models while the duration of unemployment has been unusually high duration adds significant information about core inflation in the post volcker disinflation period

should bond funds be added to m2 abstract in the early 1990s m2 growth has been weaker than estimated while bond mutual funds have grown rapidly this study assesses whether adding bond funds to m2 would yield a monetary aggregate that is more explainable using a standard error correction model of money with and without modifications for bond interest rate and thrift resolution effects results indicate that it is important to net out institutional and ira keogh assets from bond funds as is done for m2 and that adding such a bond fund series to m2 results in an aggregate that is somewhat more explainable than m2

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

regression direction and weak exogeneity abstract the absence of testing for weak exogeneity in money demand has often led to stark conditioning claims regarding the validity of price equations this paper uses the johansen procedure to explore the conditioning properties of money demand systems for nonborrowed reserves m1 and m2 our results show that irrespective of the specification of the cointegrating relation a feedback mechanism enters the equation for money the opposite however is not true for the price equations the results also cast a warning for single equation models of money demand in that weak exogeneity is sensitive to how the system is defined

formation of inflation expectations from the simple to the rational expectations hypothesis using quarterly survey expectational data for seven ec countries this paper tests how producers form their inflation expectations the results indicate that the simple expectational hypotheses do not give an adequate account of the variation in the price expectational data because they fail to allow for the information contained in forecast models of inflation however the producers generally do not incorporate disequilibrium inflation into their inflation expectations

inflation and money in colombia another p star model this document presents the estimation of a recent version of the p star model by gerlach and svensson 2003 and its predictions for colombia january 1980 to april 2005 the model is designed to explain the inflation gap observed rate minus the target based on the monetary gap and the output gap according to the results the output gap lacks significant effects while the monetary gap has significant positive effects on inflation

what makes the output inflation trade off change the absence of accelerating deflation in japan it is standard to model the output inflation trade off as a linear relationship with a time invariant slope we assess empirical evidence for two sets of theories that allow for endogenous variation in the slope of the short run phillips curve at an empirical level we examine why large negative output gaps in japan in the late 1990s did not lead to accelerating deflation but instead coincided with stable albeit moderately negative inflation our results suggest that this episode is most convincingly interpreted as reflecting a gradual flattening of the phillips curve we find that this flattening is best explained by models with endogenous price durations these models imply that in any economy where trend inflation is substantially lower or substantially higher today than in past decades time variation in the slope of the phillips curve has become too important to ignore

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

monetary analysis and monetary policy in the euro area 1999 2006 abstract this paper assesses the practical experience of monetary analysis at the ecb from the introduction of the euro in 1999 through 2006 the paper exploits a unique and rich real time data set containing both the vintages of data and the economic models that have been employed in the ecb s monetary analysis during the first eight years of monetary union it embodies both a description of how monetary analysis was conducted over this period and a quantitative evaluation of the indicators of risks to price stability that derived from this analysis a close investigation of this material is used to evaluate the role monetary analysis has played in the evolution of monetary policy in the euro area

supply chain and logistics issues of bio energy production abstract within the concert of renewable energy technologies bio energy can play a decisive role during the next decades when smartly designed and applied under favorable conditions in this respect efficient and effective supply chain and logistics management represent one key parameter this paper presents a literature review of articles published in english speaking peer reviewed journals from 2000 to 2009 which cover the interface of bio energy production and issues of logistics and supply chain management first the articles are assessed according to descriptive criteria such as journal year of publication and research design applied then issues and challenges of designing and operating biomass chains that secure stable and competitively priced feedstock supply for bio energy plants have been classified 1 into the operations harvesting and collection storage transport and pre treatment techniques as well as 2 into overall supply system design although biomass supply chains for energy use are manifold in terms of size design and functioning most relevant issues regarding supply chain management and logistics of bio energy production are identified the findings are discussed against the backdrop of bio energy as sustainable renewable energy option

eurosystem monetary targeting lessons from u s data abstract using a small empirical model of inflation output and money estimated on u s data we compare the relative performance of monetary targeting and inflation targeting the results show monetary targeting to be quite inefficient yielding both higher inflation and output variability this is true even with a nonstochastic money demand formulation our results are also robust to using a p model of inflation therefore in these popular frameworks there is no support for the prominent role given to money growth in the eurosystem s monetary policy strategy

bio energy policies in a global context abstract against the background of an increasing global demand for bio energy the need for sustainability standards and a certification system ensuring sustainable production and trade has grown rapidly nevertheless there is currently no specific forum for discussions on how to deal with biomass trade at the multilateral level distortions in agricultural and energy trade regimes the myriad of standards and the lack of a clear biomass classification in the multilateral trade regime suggest that bio energy products may not deliver sustainable development gains for all trading partners this paper analyses then the global impact of bio energy policies on biomass production and trade paying particular attention to sustainable development in the bio energy sector it examines how a possible reduction and elimination of trade barriers as well as a phasing out of trade distorting support measures would contribute to the development of a global sustainable bio energy market

money and velocity during financial crises from the great depression to the great recession abstract this study models the demand for a broad monetary aggregate m2 from the great depression through the great recession key to the model is the interaction between a measure of time variation in economic agents perceived financial risk and an index of the cost of portfolio adjustment the finding of a useful money demand relationship suggests that skepticism regarding the indicator role of a broad liquid money aggregate as a policy guide may be exaggerated further our model provides some guidance for policymakers who face the challenge of unwinding large balance sheets as risk premia return to normal and velocity adjusts

the information content of money in forecasting euro area inflation this article contributes to the debate on the role of money in monetary policy by analysing the information content of money in forecasting euro area inflation we compare the predictive performance within and among various classes of structural and empirical models in a consistent framework using bayesian and other estimation techniques we find that money contains relevant information for inflation in some model classes money based new keynesian dynamic stochastic general equilibrium dsge models and vector autoregressions vars incorporating money perform better than their cashless counterparts but there are also indications that the contribution of money has its limits the marginal contribution of money to forecasting accuracy is often small money adds little to dynamic factor models and it worsens forecasting accuracy of partial equilibrium models finally nonmonetary models dominate monetary models in an all out horserace

the value of time and recent u s money demand instability much controversy has surrounded the u s money demand relationship or more precisely its stability this is rather disappointing in light of the central importance of money demand estimates for the formulation and implementation of effective monetary policy and for almost all theories of aggregate economic activity to date the vast majority of alternative money demand specifications have generally failed to produce a stable money demand function throughout the 1970s and 1980s

adding bond funds to m2 in the p star model of inflation abstract during the early 1990s m2 growth has been unusually weak and the p star model has underpredicted inflation at the same time bond funds have grown rapidly we find that the p star model performs well recently when m2 is adjusted for bond funds

european union leadership in biofuels regulation europe as a normative power the rapid emergence of the european union eu as a leader in global environmental politics has led many scholars to argue in favour of the eu being a normative power in international relations this paper critically examines the eu s biofuels policy and evaluates whether its attempts to lead by example and shape international practice in this field could support such arguments europe s biofuel policies are evaluated through a sustainable development lens so as to determine the extent to which it has embraced a holistic approach to sustainability while not dismissing that the identity of the eu is indeed an explanatory factor and that normative intentions may well be regarded as a motivating force this study argues that an interest based perspective on international environmental regulation offers a supplementary view of how an actor s preferences for an international regime are shaped by erecting barriers aimed at shielding its own inefficient domestic biofuels production the eu is in essence placing trade competitiveness and economic growth above environmental protection thus permitting sustainability concerns to be addressed only in part

integrated assessment of sustainability trade offs and pathways for global bioenergy production framing a novel hybrid approach abstract current controversies and debates on bioenergy production in the areas of greenhouse gases emission reduction food and energy security social exclusion and welfare erosion and ecosystem deterioration attest to the challenges which the bioenergy sector has to overcome to achieve its global production potentials because it is yet an evolving sector the sustainability of bioenergy production in different regions is very elusive experiences show that bioenergy policies in one region can have impacts not only on its own but also on other regions social economic and ecological sustainability it is thus important to assess development pathways for bioenergy to exploit the potential benefits and forestall any unnecessary costs this paper frames a novel hybrid approach for assessing bioenergy potentials for regions with diverging economic social and ecological systems the approach is based on a conceptual framework that takes into account trade offs decisions on sustainability goals and production options in the assessment of bioenergy pathways it combines different empirical techniques for the systematic investigation of trade offs and pathways including fuzzy logic conjoint logit and path analyses to show the relevance and utility of these techniques for the integrated assessment of trade offs and pathways in bioenergy development we illustrated their application using results and data from previous related studies

international bioenergy trade a review of past developments in the liquid biofuel market policies aimed to promote biofuels locally had tremendous effects on global market developments across the past decade this article develops insights into the interaction of these policies and market forces via a comprehensive collection and analysis of international production and trade data it shows that world biofuel production and trade has grown exponentially from below 30 pj in 2000 to 572 pj in 2009 for biodiesel from 340 pj in 2000 to over 1540 pj in 2009 for fuel ethanol the eu has dominated world biodiesel whereas the us and brazil have led fuel ethanol production world net biofuel trade reached 120 130 pj in 2009 and was directed towards the most lucrative markets for biodiesel this has been the eu whose imports rose to 92 pj in 2008 and remained at 70 pj in 2009 regarding fuel ethanol both the us and the eu have been prime destinations for competitively priced exports the vast majority of which originated in brazil international biofuel trade is both supply and demand driven the demand side was shaped by support policies which generally increased the domestic market value of biofuels trade developed wherever these policies prices were not accompanied by respective measures it is found that import duties largely influenced trade volumes whereas trade routes were mainly driven by tariff preferences trade regimes appear to have been designed and adapted unilaterally along national interests causing market disruptions trade inefficiencies and disputes to avoid these it is important to explicitly consider international trade implications of national trade policies a prerequisite is to improve the understanding of the underlying complex and interwoven links within the market the current lack of adequate homogeneous international reporting of biofuel production and trade statistics could be bridged via internationally standardized custom clarifications trade factor interrelations also need to be investigated further

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

more evidence on the money output relationship i introduction the empirical relationship between money and real output continues to produce conflicting evidence stock and watson 1989 using monthly u s data for the period 1960 85 report that while actual money growth m1 does not granger cause the growth of industrial production its detrended component does krol and ohanian 1990 internationalize stock and watson s study and find that both actual and detrended ml growth granger cause output growth in the u k but that neither series affects output growth in japan canada and germany friedman and kuttner 1992a 1992b 1993 question the role of money in explaining output behavior they report 1993 that even though the stock watson specification is used simply updating the sample through 1990 yields the result that detrended m1 growth no longer explains output growth friedman and kuttner also argue that the commercial paper rate or the spread between the three month treasury bill and the commercial paper rate provides a better gauge for output s reaction to monetary policy changes replacing the treasury bill rate used by stock and watson with the commercial paper rate or the spread friedman and kuttner find that m1 growth has no marginal explanatory power over output a feature of recent investigations of the money output link is the general use of a var specification based on the presumption that the series are difference stationary e g feldstein and stock 1994 several recent studies however have questioned this presumption due to the low power of unit root tests dejong et al 1992 dejong 1992 dejong and whiteman 1991a 1991b and rudebusch 1993 these studies suggest that it is difficult to distinguish between difference stationary as the null and trend stationary as the alternative hypothesis given the uncertainty about the existence of a unit root in economic time series we re examine the money output relation by specifically considering the affect of assuming that the series are trend stationary or difference stationary such an investigation is important to determine if permanent temporary changes in money and other series create permanent temporary shifts in real output for example if real output and money contain a unit root i e they are best represented by the difference stationary model permanent money shocks may produce permanent shifts in output put another way permanent money shocks may have a long run impact because they affect the stochastic trend component of output and thus change the output level for all future horizons on the other hand if output and other series are represented by a trend stationary model fluctuations around a trend level of these series are stationary mean reverting under this model a transitory money shock may only have a short run impact on output as it quickly returns to its trend level to analyze the sensitivity of results to different stationarity assumptions used we estimate two var systems one system uses the log levels of the variables along with a deterministic time trend the other uses the log difference of the series and excludes the trend term the first system represents the trend stationary specification and the second one represents the difference stationary specification there is some evidence that the money output link may be sensitive to the presence of a deterministic trend term e g eichenbaum and singleton 1986 stock and watson 1989 even so our study provides a direct comparison based on identical data sets of the effects that the two different stationarity specifications have on the money output results while testing the robustness of the money output connection is our main focus we also provide some different perspectives on the debate one is to use both long and short term data sets most studies limit the analysis to quarterly data from the post 1960 era we study the link between money interest rates and output using annual data over the extended period 1915 1993

money in an estimated business cycle model of the euro area this article examines the role of money in a small scale dynamic general equilibrium model of the euro zone estimated by maximum likelihood the model allows for both intertemporal and intratemporal non separability in preferences we find first that real balances do not affect the marginal utility of consumption second money demand shocks mainly help to forecast real balances while real shocks explain the bulk of price output and interest rates fluctuations third the calculation of the natural rate of interest reveals that the evolution of the interest rate is mostly accounted for by the real sources of fluctuations

lessons on monetary policy from the 1980s t he half decade running from mid 1982 to mid 1987 was a pretty good era for u s monetary policy as these things go a sharp easing of policy beginning some time around midyear 1982 helped set in motion a recovery from the most severe business downturn the united states had experienced since the 1930s a downturn that tight monetary policy earlier on had deliberately brought about in order to slow the alarming acceleration of prices the recovery that ensued developed into a sustained expansion that continued without interruption through the end of 1987 thereby setting a new record for the longest recorded business expansion in u s peacetime experience a fiscal policy based on unprecedentedly large and continually growing structural budget deficits was a major factor underlying this record length expansion but at least monetary policy did not stand in the way just as importantly the severe 1981 82 recession served its intended purpose of substantially restoring price stability and even after five years of expansion inflation remained modest by recent historical standards at least as judged by these outcomes for the standard objectives of macroeconomic policy u s monetary policy was a distinct success during these years economists hoping to say something useful about monetary policy have had a tougher time the quantitative relationships connecting income and price movements to the growth of familiar monetary aggregates including especially the m1 measure of the money stock that had been the chief focus of monetary policy during 1979 82 utterly fell apart during this period moreover the collapse of these long standing

inflation and monetary dynamics in the us a quantity theory approach in this article we investigate the long run link between inflation and money growth in the united states since 1960 a measure of the long run inflation trend is constructed which bears the interpreation of monetary inflation rate and is directly related to the excess nominal money growth process money growth less output growth as postulated by the quantity theory consistent with the memory characteristics of the series their fractional integration and cointegration properties are taken into account in empirical modelling the proposed measure is then compared with several existing measures of core inflation aimed at capturing long run inflation dynamics but unrelated to money growth the monetary long run inflation rate performs well in out of sample forecasting exercises especially over a 2 3 year horizon yielding valuable information to monetary policymakers