international evidence on the demand for money one of the current questions in the literature on the demand for money is whethe r the adjustment of actual to desired money holdings is in nominal or real terms this paper describes a simple procedure that can be used to test the nominal against the real hypothesis the test is carried out for twenty seven countries the paper also tests the structural stability of the demand for money equations and the correctness of th e dynamic specification the results are strongly in favor of the nom inal adjustment hypothesis there is however some evidence of moder ate structural instability before and after 1973 the instability doe s not affect the conclusion that the nominal adjustment hypothesis do minates the real adjustment hypothesis copyright 1987 by mit press

testing for superexogeneity of wage equations the superexogeneity of wage equations is tested in four major european countries this is an important issue because while only weak exogeneity is needed for estimation purposes and for testing and strong exogeneity for forecasting superexogeneity is required for policy analysis the procedure suggested by engle and hendry 1993 is adopted to carry out the empirical analysis in all cases the conditional model is not affected by the first and second moments of the residuals from the marginal models this invariance result implies that the estimated linear regression models are not subject to the lucas critique over the period examined differences in wage determination between the various countries can be plausibly interpreted as resulting from the bargaining environment

ethics in finance and accounting editorial introduction in light of the recent crisis and its aftershocks it becomes crucial to reflect on the relationship between finance and accounting and on how to integrate ethics and efficiency as well as on how to motivate and empower practitioners in the world of finance to commit to justice fairness and enhanced understanding and to improving their personal integrity this article written as an editorial introduction to a special issue includes works related to control measurement and ethical behavior misbehaviors in finances and accounting professionalism in accounting ethical investing and corporate reporting we conclude by suggesting further research for a better integration of technical aspects of accounting and finances into business activity human activity actually and an for understanding of ethics not limited to rules but as a mutual and interdependent system of values human goods virtues and principles

stability of a uk money demand equation a bayesian approach to testing exogeneity the paper analyses an m3 demand for money equation for the united kingdom attention is paid to the policy change that occurred in 1971 with the introduction of the measure known as competition and credit control classical and bayesian single equation instrumental variables procedures are developed to investigate the exogeneity of the short term interest rate and the constancy of the parameters of the underlying relationships the parameters of the short term equation have changed as well as the exogeneity status of the interest rate variable but the parameters of the long term equation appear to be less affected by the policy change

the short run demand for money a reconsideration the partial adjustment approach to the specification of the short run demand for money has dominated the literature for more than a decade there are three basic problems with this approach first the same lag structure is imposed on all variables and each independent variable enters only as a current value in contrast a rational individual would respond to different variables income interest rates prices with quite different lags second when the general price levelis subject to gradual adjustment hut can move quickly in response to supply shocks the influence of these supply shocks should enter with a negative sign third the estimated equation for real balances may not be a money demand equation at all but rather its coefficients may represent a shifting mixture of demand and supply responses the empirical work examines several alternative dynamic specifications including a generalized partial adjustment framework and the error correction model both of the latter specifications exhibit greater structural stability after 1973 than the standard partial adjustment specification and the generalized partial adjustment model also yields relatively small errors in post sample dynamic simulations shifts in coefficients as the sample period is extended after 1973 are consistent with the interpretation that the real balance equation no longer traces out structural demand parameters hut rather a mixture of demand and supply responses this abstract was borrowed from another version of this item

local political business cycles evidence from philippine municipalities abstract this paper establishes the existence of short term political business cycles in the philippines over the period 2003 2009 examining a balanced panel of 1143 municipalities shows that employment levels increase in the two pre electoral quarters and drop sharply in the two quarters following elections further results are consistent with the cycles being generated by incumbents attempts to increase their chances of re election cycles are stronger in sectors that incumbents are more able to influence and when they expect stronger electoral competition evidence suggests that these cycles are detrimental to development

interest rate volatility and monetary policy in october 1979 the federal reserve shifted from an interest rate oriented operating procedure to a reserves oriented procedure it is argued in this paper that part of the very large increase in interest rate volatility which resulted from the policy switch may have been due to shifts in the parameters of the money demand equation shifts due to the adoption of a reserve aggregates operating procedure this result is derived by comparing rational expectations equilibria in a simple theoretical model under alternative policy rules this allows the variance of interest rates to be explicitly expressed as a function of the policy rule this abstract was borrowed from another version of this item

a dynamic baumol tobin model of money demand this note considers a stochastic version of the baumol tobin model of the demand for money a dynamic demand function is derived for the case in which independent variables change to new steady state values the s s inventory policy is shown to give rise to an aggregate partial adjustment equation with a variable adjustment speed the methodology is that introduced to target threshold models by milbourne buckholtz and wasan 1983 in their study of the miller orr model

error correction mechanisms the interface between economic theory and applied econometrics is often one of uneasy compromise with the pragmatic justification for many accepted procedures resting on a theoretical base this paper examines the surprisingly strong arguments that exist in terms of economic theory for the use of error correction mechanisms in the specification of short run dynamic adjustment a common heresy exists that while economic theory provides a detailed analysis of comparative static equilibria it can offer no guidance as to the appropriate specification of dynamic adjustment towards an equilibrium perhaps in consequence it is not uncommon to find examples where the necessary dynamic specification is achieved by tacking onto an existing equilibrium specification some relatively ad hoc short run adjustment scheme the intercession of stochastic arguments in this process is confused and critical implications are frequently ignored in practice but perhaps more importantly there will typically be no guarantee that the dynamic specification is consistent with the prescribed equilibrium consistency in this sense requires that the short run dynamic adjustment be directed by the perceived disequilibrium and that eventual convergence to the equilibrium position be ensured that two separate theoretical arguments co exist within the final specification is the root cause of many difficulties both theoretical and empirical this abstract was borrowed from another version of this item

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

the goals and promise of the sarbanes oxley act the primary goal of the sarbanes oxley act was to fix auditing of u s public companies consistent with its full official name the public company accounting reform and investor protection act of 2002 by consensus auditing had been working poorly and increasingly so the most important and most promising part of sarbanes oxley was the creation of a unique quasi public institution to oversee and regulate auditing the public company accounting oversight board pcaob in controversial section 404 the law also created new disclosure based incentives for firms to spend money on internal controls above increases that would have occurred after the corporate scandals of the early 2000s in exchange for these higher costs which have already fallen substantially sarbanes oxley promises a variety of long term benefits investors will face a lower risk of losses from fraud and theft and benefit from more reliable financial reporting greater transparency and accountability public companies will pay a lower cost of capital and the economy will benefit because of a better allocation of resources and faster growth sarbanes oxley remains a work in progress section 404 in particular was implemented too aggressively but reformers should push for continued improvements in its implementation by pcaob rather than for repeal of the legislation itself

inference in cointegrating models uk m1 revisited the paper addresses the practical determination of cointegration rank this is difficult for many reasons deterministic terms play a crucial role in limiting distributions and systems may not be formulated to ensure similarity to nuisance parameters finite sample critical values may differ from asymptotic equivalents dummy variables alter critical values often greatly multiple cointegration vectors must be identified to allow inference the data may be 1 2 rather than 1 1 altering distributions and conditioning must be done with care these issues are illustrated by an empirical application of multivariate cointegration analysis to a small model of narrow money prices output and interest rates in the uk copyright 1998 by blackwell publishers ltd

investigating stability and linearity of a german m1 money demand function starting from a linear error correction model ecm the stability and linearity of a german m1 money demand function are investigated applying smooth transition regression techniques using seasonally unadjusted quarterly data from 1961 1 to 1990 2 it is found that the money demand equation considered is both linear and stable after extending the sampling period until 1995 4 a clear structural instability due to the monetary unification on 1 july 1990 is found and subsequently modelled a non linear specification for the extended period is presented and discussed copyright 1999 john wiley sons ltd

monetary economic myth and econometric reality few of the main macro economic forecasting systems can produce sensible forecasts without the tender loving care of their proprietors many econometric equations in com mon use show significant deterioration in the accuracy with which they characterise data as time passes and many economists are sceptical about empirical evidence feeling it lacks credibility monetary relationships have the dubious distinction of being among the leaders in this field as witnessed by the very large mispredictions of m1 models in the usa over what is now known as the missing money period 1973 76 as well as during the recent great velocity decline 1979 82 in the uk models of m1 and m3 demand experienced large structural breaks following the competition and credit control regu lation changes and the move to floating exchange rates perhaps it is no surprise that goodhart s law should have been formulated with respect to money demand equations

an alternative approach to the american demand for money with a decade of evidence behind it the profession seems to have agreed on the fact that a structural break shifted the american demand for money shortly after 1973 it is difficult to pinpoint the source of the trouble precisely let alone to explain the event with an econometric model in their survey judd and scadding 1982 tentatively concluded that financial innovation is the source of the problem while this conclusion has not been universally accepted the instability of the money demand function is largely taken as a given stylized fact the primary goal of this article is to provide an alternative solution to the case of the missing money using the methods of hendry 1979 it should be stressed at the outset that as this paper deals with a problem in the applied literature it is unabashedly empirical in nature the paper attempts to explain an empirical difficulty without presenting a new theoretical model of money demand rather in the context of the standard transactions demand theory for narrow money a number of questions are analyzed with an atypical econometric model was there actually a shift or a series of shifts in the demand for money if not why have other investigators concluded that there was in fact a shift most importantly what function seems to be the most reasonable approximation to the data generation process during the period in question

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

long run money demand revisited evidence from a non linear approach abstract in this paper we argue that employing the conventional linear cointegration approach in examining long run money demand may not be appropriate after taking into account the existence of transaction costs we provide evidence to show that deviations from equilibrium money demand follow an exponential smooth transition autoregressive process that is mean reverting outside a given range and has a unit root inside the range our findings also provide an alternative explanation for the failure of much of the existing literature to support a long run money demand function

an adversarial ethic for business or when sun tzu met the stakeholder in the economic literature on the firm especially in the transaction cost tradition a sharp distinction is drawn between so called market transactions and administered transactions this distinction is of enormous importance for business ethics since market transactions are governed by the competitive logic of the market whereas administered transactions are subject to the cooperative norms that govern collective action in a bureaucracy the widespread failure to distinguish between these two types of transactions and thus to distinguish between adversarial and non adversarial relations has led many business ethicists to develop a uniform moral code yet in market transactions the checks and balances built into the system of commercial exchange are such as to permit more instrumental forms of behavior in administered transactions by contrast these checks and balances are absent and thus the institutional context calls for much greater exercise of moral restraint in this paper i begin the task of developing an adversarial ethic for business according to this view the competitive environment licenses a greater range of self interested behavior but also imposes its own constraints on the strategies that firms may adopt in the pursuit of their interests

unobserved retailer behavior in multimarket data joint spatial dependence in market shares and promotion variables marketing scholars and practitioners frequently infer market responses from cross sectional or pooled cross section by time data such cases occur especially when historical data are either absent or are not representative of the current market situation we argue that inferring market responses using cross sections of multimarket data may in some cases be misleading because these data also reflect unobserved actions by retailers for example because the opportunity costs of doing so do not outweigh the gains retailers are predisposed against promoting small share brands as a consequence local prices and promotion variables depend on local market shares the higher the local share the higher the local observed promotion intensity we refer to this reverse causation as an endogeneity ignoring it will inflate response estimates because both the promotion effects on share as well as the reverse effects are in the same direction in this paper we propose a solution to this inference problem using the fact that retailers have trade territories consisting of multiple contiguous markets this implies that the unobserved actions of retailers cause a measurable spatial dependence among the marketing variables the intuition behind our approach is that by accounting for this spatial dependence we account for the effects of the retailer s behavior in this context our study hopes to make the following contributions at the core of which lies the above intuition first we separate the market response effect from the reverse retailer effect by computing responses to price and promotion net of any spatial and therefore retailer influence second underlying this approach is a new variance decomposition model for data with a panel structure this model allows to test for endogeneity of prices and promotion variables in the cross sectional dimension of the data this test aims to complement the one developed by villas boas and winer 1999 who test for endogeneity along the temporal dimension third to illustrate the approach we use information resources inc iri market share data for brands in two mature and relatively undifferentiated product categories across 64 iri markets whereas we only use data with very short time horizons to estimate price and promotion responses with the spatial model we do have data over long time windows we use the latter to validate the approach specifically within market estimates of price and promotion response are not subject to the same endogeneity because we hold the set of retailers constant therefore comparing within and across market estimates of price and promotion responses is a natural way to validate the approach consistent with our argument ignoring the reverse causation in the cross sectional data leads to inferences of price and promotion elasticities that are farther away from zero than the elasticities obtained from within market analysis in contrast cross sectional spatial estimates and time series estimates show convergent validity from a practical point of view this means it is possible to obtain reasonable within market estimates of price and promotion elasticities from predominantly cross sectional data this may benefit marketing managers the manager who would act on the inflated elasticities will over allocate marketing resources to promotions because she ignores retailers censorship of promotions on the basis of already existing high share we explore other approaches to correct for the inference bias and discuss further managerial issues and future research

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

macro economic forecasting and modelling confidence in macro economic forecasting has periodically been punctured by episodes of economic turbulence and concomitant predictive failure the poor performance in predicting the consumer boom in the late i98os and the depth and duration of the recession in the i99os can be viewed as merely the latest examples in a catalogue of failures with noteworthy antecedents including the under prediction of post war consumption and the i974 5 and i979 81 recessions periods of economic turbulence may be informative in highlighting model inadequacy but they also being into question the usefulness of economic forecasting 2 should we be surprised that such failures have occurred econometric theory comprises a body of tools and techniques for analysing the properties of prospective methods under hypothetical states of nature in the forecasting context the methods are forecasting models and procedures and the states of nature relate to the properties of the variables to be forecast for an econometric theory of forecasting to be useful in terms of delivering relevant conclusions about empirical forecasting those states must adequately capture thfie appropriate aspects of the real world to be forecast however the traditional text book theory of economic forecasting fails to allow for a number of vital features of the economy in particular analyses of forecasting have usually been based on assumptions that implicitly rule out structural change or regime shifts in the economy namely i a constant time invariant data generating process dgp 2 a stationary non integrated dgp 3 a unique model of the economy which coincides with the dgp under these assumptions particularly i and 3 forecasts calculated as the conditional expectation given the model are optimal in the sense that they are unbiased and efficient any other forecast will have a larger forecast error variance by definition if the model is the dgp then the expected future value of the variable given all information available at the present time is the conditional expectation with respect to the model in general forecasts are not financial support from the uk economic and social research council under grant rooo233447 is gratefully acknowledged by both authors neil ericsson provided many helpful comments on an earlier draft 1 spanos i989 considers the contemporary predictive failure of aggregate consumption functions over 1945 51 arguing that model mis specification played a role wallis i989 discusses the forecasting record of the major uk model based forecasting teams for the i974 5 and i979 8i recessions

policy regime changes and monetary expectations testing for super exogeneity abstract the super exogeneity status for weekly u s monetary expectations structure is examined the incomplete structure of the proposed model requires the use of an incidental parameter which is approximated by a linear function of certain instruments a super exogeneity test within the instrumental variables framework examines whether distributional changes stemming from the regime shifts affect the error correction parameter in the expectations structure under the assumption that the variance of the error correction term is constant the data evidence is found to reject super exogeneity

i 2 representations of us money demand abstract researchers have found success in estimating i 2 representations of money demand for other countries using a general equilibrium cash credit model an i 2 model for the united states is tested no bias is found from treating the variables as i 1

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

nonlinear equilibrium correction in u s real money balances 1869 1997 several theoretical models of money demand imply nonlinear functional forms for the aggregate demand for money characterized by smooth adjustment toward long run equilibrium in this paper we propose a nonlinear equilibrium correction model of u s money demand that is shown to be stable over the sample period from 1869 to 1997

financial services cointegration and the demand for money in israel the main hypothesis of this study is that ignoring the state of the financial services in the demand for money is a theoretical misspecification and is an important reason for the instability of the money demand as traditionally estimated a measurement approach for the state of the financial services is developed and applied to estimation of the demand for money in israel the approach presented in melnick 1990 is further developed by analyzing the lack of cointegration between real balances and their determinants according to theory as a case of omitted variables in a nonstationary time series set up when our measure for the state of the financial services is included it yields a stable cointegrated long run demand far money relationship the validity of steady state inflation tax analysis is questioned and a negative recommendation for the use of quantitative money targets is given copyright 1995 by ohio state university press

economic integration across latin america evidence from labor markets 1990 2013 combining macroeconomic and microeconomic data and three indicators of international market integration this paper assesses the degree to which latin american labor markets are integrated the results suggest that relative to east asia latin american labor markets are somewhat more integrated but considerable differences across countries persist in addition the evidence indicates that the degree of labor market integration across latin american borders is significantly less than that of labor markets within mexico and within the united states in two of the three indicators these differences may suggest opportunities for efficiency gains from further labor market integration

money demand during hyperinflation and stabilization bulgaria 1991 2000 the demand for money in bulgaria is estimated over a ten year period 1991 2000 of high inflation and inflation uncertainty the paper distinguishes between three well defined sub periods high variable but not systematically accelerating inflation from 1991 until april 1996 the near hyperinflation period from may 1996 to february 1997 and the subsequent stabilization after the adoption of a currency board the empirical analysis utilizes a standard methodology of cointegration and error correction the functional determinants of the demand for money change during the different sub periods during the hyperinflation episode cagan s model is employed

currency substitution and nonlinear error correction in taiwan s demand for broad money we modify the conventional money demand function by including a real exchange rate variable to reflect the effect of currency substitution empirical evidence indicates that the variable is crucial to the long run stability of taiwan s money demand after finding the failure of a linear error correction model ecm in describing the dynamics of taiwan s money demand we apply a nonlinear ecm to examine its dynamics and support the appropriateness of the nonlinear model empirically

partisan political business cycles in the german labour market empirical tests in the light of the lucas critique this paper focuses on alternative specifications ofpartisan political business cycles partisan theory rational partisan theory and hysteresis augmentedrpt it elaborates on analogies of the natural ratehypothesis underlying all specifications and thecointegration concept accordingly problems of thespecification of hypotheses estimation and inferencein a cointegrating framework with politicalinterventions are treated super exogeneity tests areshown to be equivalent to tests of the lucas critiqueand the rpt therefore the concept ofsuper exogeneity is transferred to empirical tests ofpartisan cycles by this a new testing framework ofpartisan cycles is developed and applied to germanlabour market data

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

forecasting in cointegrated systems we consider the implications for forecast accuracy of imposing unit roots and cointegrating restrictions in linear systems of i 1 variables in levels differences and cointegrated combinations asymptotic formulae are obtained for multi step forecast error variances for each representation alternative measures of forecast accuracy are discussed finite sample behaviour in a bivariate model is studied by monte carlo using control variables we also analyse the interaction between unit roots and cointegrating restrictions and intercepts in the dgp some of the issues are illustrated with an empirical example of forecasting the demand for m1 in the uk

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

exogeneity within the m2 demand function evidence from a large macroeconomic system a large body of literature investigates whether a stable and predictable long run association between money and its arguments exists one point of variation between models is whether to include an interest rate measure directly within the long run relationship several recent studies indicate that empirical findings are sensitive to the choice therefore the present article reexamines the empirical significance of the interest rate within a four equation macroeconomic system the results suggest that the interest rate 1 may be excluded from the m2 demand function 2 is strongly exogenous to most of the system s remaining variables and 3 may represent a common trend jel e41 e52 c32 i introduction much of recent macroeconomic literature has been dedicated to investigating whether long run relationships exist between macroeconomic variables 1 such preoccupation is understandable given the myriad models in which these relationships play a dominant role a significant portion of this literature has focused on whether a long run relationship exists between money demand and its arguments 2 of course the close association between the variables is an integral part of theories that suggest that the monetary authority may qualitatively influence the direction of the aggregate economy the estimation of long run money demand models have differed in their methodological approach and in countless other ways one specific way in which they may differ in whether the investigator s incorporates an interest rate measure directly within the long run relationship for example although fischer and nicholetti 1993 and baba et al 1992 incorporate various interest rate measures to identify the long run money demand function hendry and mizon 1998 and hendry and ericsson 1991 estimate the long run money demand function without an interest rate measure although the theoretical importance of the interest rate within the money demand function predates pigou s 1917 classic treatment and has been discussed at length elsewhere the importance empirically has recently been high lighted by sims 1980 in examining whether money granger causes output sims s results suggest that the tests are sensitive to whether a short term interest rate measure is included campbell and perron 1991 further argue that sims s findings are an outgrowth of whether the trivariate model of money prices and output are cointegrated that is i 0 or whether reduction to stationarity requires the introduction of a fourth variable the interest rate reduction to stationarity is important because estimating granger causality with nonstationary residuals may yield biased estimates due to nonstandard residual distributions the present article reexamines the significance of the interest rate within the long run money demand function specifically i examine two aspects of interest rate money behavior the initial examination is to test whether the interest rate measure three month treasury bill rate can be directly excluded from the long run m2 demand function following the methodology advanced by hendry and mizon 1993 johansen and juselius 1992 1994 and ericsson et al 1990 the test involves estimating the long run relationship with the interest rate measure and then impose the overidentifying zero restriction the associated log likelihood ratio statistics are distributed chi square n where n represents the number of overidentifying restrictions this approach however only examines whether the interest rate may be removed from the long run money demand vector a second area of interest is concerned with the short run responses of the interest rate more specifically the short run responses provide a test for granger causality within the cointegrated variables following ericsson et al 1998 granger causality is estimated where one or more cointegrated variables reject strong exogeneity

beware of the watchdog rethinking the normative justification of gatekeeper liability one of the prevailing explanations of the corporate scandals of the enron era and the recent financial crisis is the failure of professional gatekeepers such as auditors corporate lawyers and securities analysts to detect and disrupt corporate misconduct the alleged solution to this failure typically proposed and justified on consequentialist grounds is to impose legal liability on professionals the purpose of this paper is to critically examine the normative foundations of gatekeeper liability in the course of this paper i shall defend the claim that gatekeeper liability may be morally objectionable not only on grounds of fairness but also on consequentialist grounds the expected contribution of this paper is threefold first it systematizes the framing and moral justification of gatekeeping duties second it calls into question the normative underpinnings for targeting intermediaries instead of primary wrongdoers third it anticipates some negative and often overlooked results of gatekeeping strategies in the accounting profession specifically in the realm of clientele selection the expectation gap and auditor compensation

estimating long run economic equilibria with stochastic trends an asymptotic theory is provided to analyze a menu of currently existing estimators of cointegrated systems we study in detail the single equation ecm seecm approach of hendry our theoretical results lead to prescriptions for empirical work such as specifying seecm s nonlinearly and including lagged equilibrium relationships rather than lagged differences of the dependent variable as covariates simulations support these prescriptions and point to problems of overfitting not encountered in the semiparametric approach of phillips and hansen 1990

identification and estimation of money demand in most natural sciences physics chemistry biology theories are validated by controlled experiment however in other natural sciences astronomy meteorology and in most social sciences including economics the data are characteristically generated not by experiment but by measurement of uncontrolled systems in economics theories take the form of restrictions on the models assumed to generate the data and statistical methods replace experimental controls in testing these restrictions and here is the difficulty in economics particularly macroeconomics the theory used to derive tests ordinarily does not generate a complete specification of which variables are to be held constant when statistical tests are performed on the relation between the dependent variable and the independent variables of primary interest accordingly in such cases there will be a set of often very different candidate regression based tests each of which has equal status with the others since each is based on a different projection of the same underlying multivariate model except in the unlikely event that the explanatory variables are mutually orthogonal the conditional regression coefficients which generally form the basis for the test statistic will depend on the conditioning set we conclude from this that if a theory which does not generate a complete specification of the regression test is nonetheless to have testable implications these implications must be robust over the permissible alternative specifications if the restrictions indicated by the theory are satisfied in some projections but not in others that have an equal claim to represent implications of the theory one cannot conclude that the theory has been confirmed the fact that the observable implications of valid theories must obtain over a broad but usually incompletely specified set of regressions rather than for a single regression introduces a large and unavoidable element of imprecision into hypothesis testing in macroeconomics generally it appears to be appropriate to weaken the statistical criterion for rejecting theories consider for example the theory of money demand which will engage our attention in this paper the tobin baumol square root formula implies that the elasticity of money demand with respect to the interest rate is exactly one half but which interest rate should wealth be held constant inflation in view of such uncertainties it would be inappropriate to insist in a literal minded fashion on rejecting the tobin baumol model if in some regression the measured interest elasticity differed from one half by more than two standard deviations and only then obviously a more flexible approach is called for the practice has been to conclude that the statistical evidence is consistent with the tobin baumol model as long as the interest rate coefficient is negative if it is negative and significant or negative and insignificantly different from minus one half that would provide somewhat stronger confirmation but a positive coefficient particularly a significantly positive coefficient would be viewed as raising questions about the validity of the theory in macroeconomics generally as in the money demand application the typical response to specification uncertainty has been to regard a theory as supported if the signs of the estimated coefficients agree with those expected from theory and as disconfirmed otherwise there is no theoretical justification for this procedure but it seems to be a reasonable course to follow the point that economic theory ordinarily generates incompletely specified statistical university of california santa barbara we have received helpful comments from andrew abel robert clower michael darby robert engle stephen goldfeld david laidler edward leamer robert lucas frederic mishkin and edward prescott thomas hall provided able research assistance

financial innovation and monetary control the economic conjuncture of the 1970s and 1980s was extremely disturbed with high and volatile inflation interest and exchange rates this led the monetary authorities of most western coun tries to adopt monetary targets as a financial discipline to constrain inflationary pressures but this same conjuncture also encouraged the process of financial innovation which subsequently eroded the stability of the links between certain monetary aggregates and nominal incomes which had provided the empirical basis for such targetry thus in his recent book financial in novations and the money supply podolski 1986 argues that