a confirmatory analysis of the unit root hypothesis for oecd consumption income ratios this article investigates the existence of a unit root in the consumption income ratio for a sample of 23 oecd countries over the period 1960 to 2005 for that purpose we first use recently developed unit root tests with good size and power second we employ the more powerful panel unit root tests of pesaran 2003 and smith et al 2004 that take the null of nonstationarity and a bootstrap version of the test of hadri 2000 that takes stationarity as the null hypothesis overall our confirmatory analysis renders clear cut evidence that oecd consumption income ratios contain a unit root

the microfinance promise in the past decade microfinance programs have demonstrated that it is possible to lend to low income households while maintaining high repayment rates even without requiring collateral the programs promise a revolution in approaches to alleviating poverty and spreading financial services and millions of poor households are served globally a growing body of economic theory demonstrates how new contractual forms offer a key to microfinance success particularly the use of group lending contracts with joint liability for the most part however high repayment rates have not translated into profits and studies of impacts on poverty yield a mixed picture in describing emerging tensions the paper highlights the diversity of innovative mechanisms beyond group lending contracts the measurement of financial sustainability the estimation of economic and social impacts the costs and benefits of subsidization and the potential to reduce poverty through savings programs rather than just credit the promise of microfinance has pushed far ahead of the evidence and an agenda is put forward for addressing critical empirical gaps and sharpening the terms of policy discussion

group lending repayment incentives and social collateral abstract in this paper we investigate the impact on repayment rates of lending to groups which are made jointly liable for repayment this type of scheme especially in the guise of the grameen bank in bangladesh has received increasing attention we set up and analyze the repayment game which group lending gives rise to our analysis suggests that such schemes have both positive and negative effects on repayment rates the positive effect is that successful group members may have an incentive to repay the loans of group members whose projects have yielded insufficient return to make repayment worthwhile the negative effect arises when the whole group defaults even when some members would have repaid under individual lending we also show how group lending may harness social collateral which serves to mitigate its negative effect

investment and the nominal interest rate the variable velocity case investment and the nominal interest rate the variable velocity case evan f koenig models treating money either as a consumer good or as a producer good are encompassed by a model in which both households and firms use money as a buffer between receipts and expenditures a rise in nominal interest rates increases resources devoted to intermediation while discouraging purchases financed from accumulated cash if investment is financed from contemporaneous earnings there is a tendency to substitute out of consumption and into investment when interest rates are high greater resources devoted to intermediation generate a negative wealth effect the net impact on investment is ambiguous i introduction the relationship between investment and the nominal interest rate in an economy where the cash balances of households and firms are rigidly linked to their respective expenditures has been examined by koenig 1987b in such an economy the nominal interest rate acts like a tax on agents purchases as a result households are inclined to save rather than spend when the nominal interest rate is relatively high provided that at the margin firms are able to finance at least some of their capital spending out of contemporaneous earnings this increase in desired saving is only partially offset by a decrease in desired investment realized investment is thus greatest when the nominal interest rate is high in comparison to its own moving average a short run tobin effect this paper extends koenig s analysis to the case in which households and firms at a cost in terms of real resources are able to increase the velocity of money in this context it is shown that the short run tobin effect may be reversed intuitively when the nominal interest rate is high consumption of financial services by households and firms may rise to such an extent that any decline in the consumption of nonfinancial goods and services is overwhelmed reducing the resources available for investment as in the earlier paper i allow for the possibility that some fraction 1 u of firms investment expenditures can be financed from contemporaneous earnings unless u equals zero there is a stockman effect 1981 a tendency for investment to be depressed whenever the nominal interest rate is expected to be higher on average in the future than it has been in the past when u equals unity so all investment must be financed out of accumulated assets the money balances of the representative firm can be interpreted as an argument of its production function regardless of the value of u the money balances of households may be thought of as an argument along with gross household spending of an indirect utility function thus both of the most frequently used methods of modeling the role of money as an argument of the household utility function and as an argument of the production function are special cases of the model developed here this is a substantially less restrictive framework than that employed by fischer 1979 sweeney 1984 cohen 1985 and obstfeld 1985 each of whom has also examined the effects of anticipated policy in an economy where the velocity of money is variable 1 section ii discusses the utility and profit maximization problems facing households and firms respectively and shows how the behavior of economic agents is affected by the presence of real costs of financial management a dynamic analysis is undertaken in section iii and it is shown that the short run tobin effect may operate in reverse a summary concludes the paper throughout agents are assumed to possess perfect foresight ii the model preliminary analysis intuition imagine a world in which each household receives wage and dividend income at discrete intervals but desires to purchase and consume output continuously through time

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

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

unfunded liabilities and uncertain fiscal financing we develop a rational expectations framework to study the consequences of alternative means to resolve the unfunded liabilities problem the projected exponential growth in federal social security medicare and medicaid spending with no known plan for financing the transfers resolution requires specifying a probability distribution for how and when monetary and fiscal policies will change as the economy evolves through the 21st century beliefs based on that distribution determine the existence of and the nature of equilibrium we consider policies that in expectation combine reaching a fiscal limit some distorting taxation modest inflation and some reneging on the government s promised transfers in the equilibrium inflation targeting monetary policy and debt targeting tax policy cannot anchor expectations on those target variables expectational effects are always present but need not have large impacts on inflation and interest rates in the short and medium runs in the economy s stationary distribution the capital stock may grow or shrink and substantial probability falls on little or no reneging

interpreting econometric evidence the behaviour of consumers expenditure in the uk abstract the dynamic models of consumers expenditure proposed by davidson et al 1978 and hendry and von ungern sternberg 1979 are re appraised in the light of hall s 1978 analysis of the empirical implications of the life cycle permanent income hypothesis in particular that the series for consumption should obey a random walk apart from trend in an attempt to reconcile the conflicting findings monte carlo experiments are used to demonstrate that if the davidson et al model were actually correct the hall model would appear to give a good description of the data and would probably not be rejected all the models are re estimated with new data for the uk and these data do reject a modified random walk specification in conclusion we discuss the issue of income exogeneity and comment on questions of model selection and interpretation

continuous time mean variance asset allocation a time consistent strategy abstract we develop a numerical scheme for determining the optimal asset allocation strategy for time consistent continuous time mean variance optimization any type of constraint can be applied to the investment policy the optimal policies for time consistent and pre commitment strategies are compared when realistic constraints are applied the efficient frontiers for the pre commitment and time consistent strategies are similar but the optimal investment strategies are quite different

inflation and savings international evidence on inflation induced income losses the fall in the average propensity to consume a p c in the i970s in most industrialised countries has been the subject of much debate it has been ascribed to a wide variety of causes most important it has been widely interpreted as a typical example of a situation in which economic forecasting has failed simply because it did not take into account the psychological effects of rapid changes in the economic environment given the inability of economists to predict sudden changes in consumer expectations these would naturally set severe limits to the usefulness of economic forecasting this paper takes a different approach to the problem it contends that the true fall in the a p c has been considerably lower than indicated by the statistics the argument runs roughly as follows the increase in the rate of inflation has led to a net transfer of real resources away from the personal sector this transfer was due to the fall in the real value of net monetary assets held by the personal sector and issued by the public and business sectors of the economy consumers considered this fall as negative income and adjusted their expenditure accordingly the definition of personal sector disposable income used in the national accounts statistics does not include such a correction in inflationary periods this leads to a large overestimate of true personal sector disposable income given this overestimate of the denominator it is hardly surprising that measured c y should fall when the rate of inflation rises the simplicity of this theory indicates that it can quite easily be subjected to empirical testing the tests proposed in this paper are based on a novel specification of the consumption function developed by davidson et al i978 henceforth dhsy this function has a solid theoretical foundation good statistical properties and allows both shortand long run phenomena to be easily incorporated in an acceptable manner simple theoretical considerations indicate roughly how one should go about measuring true income this corrected measure of income can be incorporated into the consumption function to be estimated in such a way that the coefficient of the correction term is endogenously determined in the regression the statistical properties of the resulting regressions are the evidence leading to a rejection or tentative acceptance of the theory

disequilibrium buffer stocks and consumers expenditure on non durables the authors examine the importance of a disequilibrium real balance effect on non durable consumers expenditure in the u k using cointegration techniques and the johansen procedure they first establish a desired long run demand function for liquid assets depending on income wealth and a set of interest rates deviations of liquidity from this desired level cause changes in consumption via intertemporal substitution but via its effect on disequilibrium liquidity consumption is modeled in an error correction framework and is also found to depend on income and financial wealth both the disequilibrium liquidity and wealth terms may be picking up the effects of financial liberalization e g mortgage leak on consumption as funds released will be temporarily held in financial assets they also find some evidence that changes in the distribution of income have an independent effect on aggregate consumption copyright 1991 by mit press

the role of monetary shocks and real shocks on the current account the terms of trade and the real exchange rate dynamics a svar analysis the article is an empirical investigation of the role of monetary shocks and real shocks on the current account the terms of trade and the real exchange rate dynamics three new open economy macro economics noem models are studied to motivate the empirical investigation then i apply the blanchard quah decomposition to identify a svar model the empirical evidence supports the noem model with the simplified household preference specification and with the small degree of pricing to market the evidence also illustrates monetary shocks important for the real exchange rate and the terms of trade movements but not for the current account fluctuations

has m2 demand in the usa become unstable evidence from an error correction model the purpose of this paper is to estimate an appropriate broad money demand function for the united states and to examine its stability after 1987 when the federal reserve system began using m2 as a policy guide special attention is paid to the model specification its dynamic structure and to its cointegration properties the results from various dynamic error correction models suggest that i the money demand relationship is stable ii most previously estimated models have undoubtedly misspecified the interest rate variable iii interest rate variability is another important determinant of real money demand and iv in contrast of previous studies the long run scale variable is real gdp whereas real consumer spending is the short run scale variable the sample period examined is 1953 1 to 1991 4

is the consumption income ratio stationary evidence from panel unit root tests this paper provides evidence on the stationarity of the consumption income ratio from a panel of 20 oecd countries using recently developed panel unit root tests which avoid the problem of low power associated with conventional unit root tests our findings suggest that the consumption income ratios in the oecd countries are generated by a nonstationary stochastic process

money demand and the effects of fiscal policies this paper reexamines the choice of the scale variable in the money demand function a variety of evidence suggests that consumer spending is a better scale variable than gnp changing the money demand specification along these lines can profoundly affect the standard keynesian analysis of a tax cut copyright 1986 by ohio state university press

the effects on output of money growth and interest rate volatility in the united states in october 1979 the federal reserve began a policy of disinflation and also stopped stabilizing interest rates subsequently interest rates became much more volatile using a methodology advanced by barro this paper estimates what this change in policy did to output in the united states the paper finds that the stagnation of the u s economy since 1979 stemmed almost as much from increased interest rate volatility as from reduced money growth the paper also assesses the extent to which increased volatility of money growth has contributed to stagnation it finds no evidence of any appreciable contribution the paper concludes that stabilizing interest rates is probably sensible monetary policy

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

complementary credit networks and macroeconomic stability switzerland s wirtschaftsring abstract the swiss wirtschaftsring economic circle credit network founded in 1934 provides residual spending power that is highly counter cyclical individuals are cash short in a recession and economize by greater use of wir credits a money in the production function mipf specification implies that transactions in wir form a stabilizing balance that makes up for the lack of ordinary currency thus unlike the ordinary money wir money is negatively correlated with gdp in the short run this implication is confirmed by empirical estimates such credit networks play a stabilizing role that should be considered in monetary policy

reinterpreting the dhsy 1978 consumption function with hindsight the justification for davidson hendry srba and yeo s dhsy s selection of their favoured equation is shown to be based upon contradicting assumptions about inflation the empirically supported model is argued not to have a theoretically justified error correction interpretation the exclusion of the intercept biases the error correction term such that it becomes significant and negative but undermines the theoretical plausibility of the long run target more generally the statistical need to include an intercept in any regression to avoid parameter bias is demonstrated the rise in inflation in the 1970s is not considered to be a credible explanation of the fall in the average propensity to consume apc from the 1950s and is shown to have questionable empirical support when a below unit income elasticity is allowed for the recent articles which have found support for dhsy s favoured formulation augmented by time varying parameters using the most contemporary uk data should be viewed with caution new interpretations for the dhsy model s persistent success are called for if it is not to be considered that dubious regressions have been resurrected

monetary fiscal policy interactions and fiscal stimulus abstract increases in government spending trigger substitution effects both inter and intra temporal and a wealth effect the ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption higher future taxes create a strong negative wealth effect while the active monetary response increases the real interest rate this paper estimates markov switching policy rules for the united states and finds that monetary and fiscal policies fluctuate between active and passive behavior when the estimated joint policy process is imposed on a conventional new keynesian model government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized the paper reports the model s predictions of the macroeconomic impacts of the american recovery and reinvestment act s implied path for government spending under alternative monetary fiscal policy combinations

analyzing the stability of demand for money equations via bounded influence estimation techniques a robust estimation technique bounded influence instrumental variables is applied to an error correction model formulation of a u s money demand equation the weights generated by bounded influence instrumental variables are used to diagnose structural instability in the specification of the equations and their error processes these techniques are shown to be valuable additions to the empirical researchers toolkit and have been implemented in commonly used econometric software copyright 1990 by ohio state university press

multiperiod portfolio optimization models in stochastic markets using the mean variance approach we consider several multiperiod portfolio optimization models where the market consists of a riskless asset and several risky assets the returns in any period are random with a mean vector and a covariance matrix that depend on the prevailing economic conditions in the market during that period an important feature of our model is that the stochastic evolution of the market is described by a markov chain with perfectly observable states various models involving the safety first approach coefficient of variation and quadratic utility functions are considered where the objective functions depend only on the mean and the variance of the final wealth an auxiliary problem that generates the same efficient frontier as our formulations is solved using dynamic programming to identify optimal portfolio management policies for each problem illustrative cases are presented to demonstrate the solution procedure with an interpretation of the optimal policies

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

the equilibrium relationship among money income prices and interest rates evidence from a threshold cointegration test the long run equilibrium relationship among money income prices and interest rates in japan is investigated by the threshold cointegration test which allows for asymmetric adjustment introduced by enders and siklos 2001 the threshold cointegration approach provides clear evidence of the cointegration relationship characterized by asymmetric adjustment by allowing for asymmetric adjustment results are obtained showing the stability of the money demand function similar to lucas 1988 who pointed out that the money demand function is stable if unit income elasticity is imposed in particular the estimated results show that the adjustment process toward equilibrium is highly persistent above an appropriately estimated threshold whereas the adjustment process toward equilibrium quickly converges below it this finding indicates that deviations from equilibrium resulting from increases in money or decreases in income and prices are highly persistent

on the design of a credit agreement with peer monitoring this paper analyses the optimal design of collective credit agreements with joint responsibility first we demonstrate that these agreements can potentially induce peer monitoring reduce the incidence of strategic default and enhance the lender s ability to elicit debt repayments the resulting benefits in terms of extended credit should however be weighted against the higher monitoring effort that such agreements impose upon participant borrowers second we show that the relative benefits from peer monitoring are maximized when risks are positively correlated across borrowers and also when the size of the group is neither too small due to a joint responsibility cost sharing and commitment effects nor too large due to a free riding effect third we compare among different monitoring structures

an investigation of the long run properties of aggregate non durable consumers expenditure in the united this paper estimates the effects of the modeling of nondurable consumption in the light of the five years of new data since the publication of the paper by j e h davidson et al 1978 and the development of the new cointegration technique of r f engle and c w j granger 1987 existing models are found to be inadequate on two grounds they fail parameter stability tests and they do not contain a suitable equilibrium specification the paper uses the cointegration approach to search for an encompassing model that is both stable and cointegrates the main finding is that the analysis must be extended to allow for differential income effects caused by changing higher rate income tax bands copyright 1989 by royal economic society

deal structuring in philanthropic venture capital investments financing instrument valuation and covenants philanthropic venture capital phvc is a financing option available for social enterprises that like traditional venture capital provides capital and value added services to portfolio organizations differently from venture capital phvc has an ethical dimension as it aims at maximizing the social return on the investment this article examines the deal structuring phase of phvc investments in terms of instrument used from equity to grant valuation and covenants included in the contractual agreement by content analyzing a set of semi structured interviews and thereafter surveying the entire population of phvc funds that are active in europe and in the united states findings indicate that the non distribution constraint holding for non profit social enterprises is an effective tool to align the interests of both investor and investee this makes the investor behaving as a steward rather than as a principal conversely while backing non profit social ventures philanthropic venture capitalists structure their deal similarly as traditional venture capital as the absence of the non distribution constraint makes such investments subject to moral hazard risk both in terms of perks and stealing and social impact focus

hara frontiers of optimal portfolios in stochastic markets abstract in this paper we consider the optimal portfolio selection problem in continuous time settings where the investor maximizes the expected utility of the terminal wealth in a stochastic market the utility function has the structure of the hara family and the market states change according to a markov process the states of the market describe the prevailing economic financial social and other conditions that affect the deterministic and probabilistic parameters of the model this includes the distributions of the random asset returns as well as the utility function we analyzed black scholes type continuous time models where the market parameters are driven by markov processes the markov process that affects the state of the market is independent of the underlying brownian motion that drives the stock prices the problem of maximizing the expected utility of the terminal wealth is investigated and solved by stochastic optimal control methods for exponential logarithmic and power utility functions we found explicit solutions for optimal policy and the associated value functions we also constructed the optimal wealth process explicitly and discussed some of its properties in particular it is shown that the optimal policy provides linear frontiers

self coordination in time inconsistent stochastic decision problems a planner doer game framework abstract time inconsistency has been a thorny issue in many economic and financial decision making problems especially when risk measures are involved in performance criteria we develop in this paper a two tier planner doer game framework with self coordination by aligning the global interest of the planner and the local interests of the doers by applying suitable penalty functions a degree of internal harmony measured quantitatively by the expected cost of self coordination can be achieved by the self coordination policy we establish an axiom system for modified preferences under which the self coordination policy can be obtained by solving a corresponding optimization problem we then apply our game framework successfully in dynamic mean variance portfolio selection

aggregate consumption and the distribution of income in the united kingdom an econometric analysis blinder i975 explained this omission by arguing that with the ascendancy of the friedman 1957 and modigliani and brumberg i954 models of consumer behaviour the view that income distribution affected aggregate consumption fell into disrepute in academic circles it was supplanted by the view that marginal and perhaps even average propensities to consume are constant over the income distribution pp 447 8 the life cycle model as is well known derives the aggregate consumption function from the hypothesis that the consumer chooses the time path of consumption which maximises lifetime utility subject to the constraint that the present discounted value of all consumption plus the present discounted value of the bequest if any is equal to lifetime disposable resources a consequence of such a hypothesis is that consumption at each instant is proportional to lifetime disposable resources with the constant of proportionality dependent only on age length of life the rate of interest and tastes in their empirical work friedman and modigliani may also have had to ignore income distribution due to lack of data however blinder 1975 went on to show that even under the life cycle hypothesis provided that the marginal utility of bequests say f was different

determining the appropriate deflation of nominal magnitudes in the uk consumption function a nonnested test approach this paper is concerned with the deflator s used to obtain series measured in real terms in the consumption function since the precise deflator s to be used in any particular specification is not uniquely determined by theoretical considerations alone we consider ways of approaching the issue empirically the starting point is to rearrange any given specification of the consumption function so that a nominal consumption variable is explained this implies that different deflators for consumption and other variables in the initial specification which are expressed in real terms define non nested models we therefore examine the issue of the appropriate method of deflation used non nested tests we consider the davidson hendry srba and yeo specification of the quarterly uk non durable consumption function and find that the preferred method of deflating consumption and income variables is to use the total durable and non durable consumption deflator we also examine the quarterly uk consumption

the carlson parkin method applied to nz price expectations using qsbo survey data abstract the standard carlson parkin economica 1975 42 123 138 method is used to estimate the parameters of producers prices expectations non nested tests suggest that the carlson parkin method is superior to the use of the simple balance statistic a non linear extension of the carlson parkin technique is estimated and no evidence is found to support the hypothesis that producers price expectations are drawn from skewed or kurtotic distributions

do real balance effects invalidate the taylor principle in closed and open economies this paper examines the determinacy implications of forecast based monetary policy rules that set the interest rate in response to expected future inflation in a neo wicksellian model that incorporates real balance effects we show that the presence of such effects in closed economies restricts the ability of the taylor principle to prevent indeterminacy of the rational expectations equilibrium the problem is exacerbated in open economies particularly if the policy rule reacts to consumer price rather than domestic price inflation however determinacy can be restored in both closed and open economies with the addition of monetary policy inertia

an exact solution to a dynamic portfolio choice problem under transactions costs the presence of any friction in financial markets qualitatively changes the nature of the optimization problem faced by an investor it requires one to either act or do nothing an issue which of course does not arise in frictionless situations the investor considered here accumulates wealth without consuming until some terminal point in time when he consumes all his objective is to maximize the expected utility derived from that terminal consumption we postpone the terminal point far into the future to obtain a stationary portfolio rule the portfolio policy is in the form of two control barriers between which portfolio proportions are allowed to fluctuate we show how to calculate them

is non monetarist arithmetic just as unpleasant what should the central bank do if the fiscal authority persists in running a deficit if the monetarist policy prescription of bond financing deficits is adopted mccallum 8 and others have shown that the real growth rate must exceed the after tax real interest rate if macroeconomic instability is to be avoided analysts such as miller and sargent 10 and burbidge 1 doubt whether this condition is met and thus argue in favor of greater flexibility in the rate of monetary growth but will that lead to instability as well is the requirement for a unique solution and macroeconomic convergence just as stringent under the non monetarist option of money financed deficits if so monetarists can deflect criticism of their financing option from those who argue money financing is preferred on feasibility grounds this paper addresses this question and concludes that money financing involves much more pleasant arithmetic than does bond financing analysis is given for both closed and small open economies considering what is available in the existing literature the open economy extension may be the most important contribution of the paper in addition to addressing the feasibility of alternative financing options we use the model to comment on the welfare cost of inflation in an open economy environment the feasibility of money financed deficits has recently drawn renewed attention among macroeconomists erbas 2 using a model which imposes the ricardian equivalence hypothesis and assumes no growth concludes that money financing is preferred as an automatic stabilizer as it offers greater short run stability of the level of income scarth 14 comes to the same conclusion using a model which does not impose the ricardian equivalence hypothesis but which allows economic growth liviatan 6 and mitchell 11 investigate the feasibility of bond and money financing using long run models of a closed economy in which government bonds constitute a part of net wealth in this paper we consider both open and closed economy long run models and we adopt the ricardian equivalence hypothesis we emphasize ricardian equivalence since most monetarists are comfortable with this assumption thus unlike the previous long run studies we examine the feasibility of monetarist versus non monetarist financing options using a model acceptable to most monetarists this is important when the results do not support monetarism the remainder of the paper is organized as follows the closed economy analysis is given in section ii the open economy case is discussed in section iii and concluding remarks are contained in section iv

financial innovation and money demand application to chile and mexico this paper reexamines one estimation of money demand equations using quarterly data for chile and mexico the authors find no evidence of cointegration of traditional long run money demand equations in light of this evidence they argue that there is an important permanent component of the demand for money not captured by traditional variables interest rates and income the authors call this phenomenon financial innovation and they include it in the traditional specification by assuming that it follows a random walk copyright 1993 by mit press

on cash in advance models of money demand and asset pricing this paper shows how a cash in advance model of money can be written in a way that combines a simple yet empirically defensible money demand function with an asset pricing equation that is similar to the standard barter economy euler equations return premia are determined as in the barter exchange model except that a short term risk free nominal interest rate enters into the first order conditions in special cases asset prices satisfy the barter economy euler equations exactly in the empirical analysis the interest rate factor adds some explanatory power but both the barter and the monetary asset pricing model perform rather poorly copyright 1991 by ohio state university press

output the stock market and interest rates this paper develops a simple model of the determination of output the stock market and the term structure of interest rates the model is an extension of the is lm model and borrows from it the assumption that output is determined by aggregate demand and that the price level can only adjust over time to its equilibrium value however whereas the is lm emphasizes the interaction between the interest rate and output this model emphasizes the interaction between asset values and output asset values rather than the interest rate are the main determinants of aggregate demand and output current and anticipated output and income are in turn the main determinants of asset values it is this interaction that the model intends to capture its goal is to characterize the joint response of asset values and output to changes in the environment such as changes or announcement of changes in monetary and fiscal policy as the above brief description makes clear anticipations are central to the story the assumption made in this paper will be one of rational expectations the paper is organized as follows section i describes the model and sections ii iv characterize the behavior of the economy under the extreme but convenient assumption that prices are fixed forever sections v and vi extend the analysis to the case where prices adjust over time to their equilibrium value

the demand for money in argentina 1978 1987 before and after the austral program in this study a monthly money demand function for argentina is estimated for a period that ends one month before the austral program may 1985 the performance of the traditional econometric approach is compared with the new cointegration approach to time series econometrics the comparison is carried out by a postsample forecast of the demand for money for a period of two years after the stabilization until july 1987 the cointegration approach is found superior to the traditional approach the first produces a relatively stable money demand whereas the second yields an unstable one

the impact of changes in human fertility on poverty household survey data for developing and transitional economies are used to estimate the effect of fertility crude birth rate net of infant deaths on private consumption poverty cross national regressions indicate that higher fertility increases poverty both by retarding economic growth and by skewing distribution against the poor our median country in 1980 had dollar a day poverty incidence of 18 9 per cent had it reduced its fertility by four per 1 000 throughout the 1980s the sample median fall it is estimated that incidence would have been reduced to 13 9 per cent the growth and distribution effects being roughly equally responsible for this reduction

micro credit in chiapas mexico poverty reduction through group lending micro credit mc programs lend money to poor borrowers using innovative mechanisms such as group lending under joint liability while successfully accounting for the presence of asymmetric information in underdeveloped financial markets mc programs have achieved what the conventional financial institutions and the government have not been able to lend to the poor impressive loan recuperation and a positive impact in poverty reduction this article analyzes the performance of alsol an mc program in chiapas mexico for 2151 participants in urban and rural areas for the time period between july 2000 and july 2001 while loan recuperation is high 95 administrative costs also remain high socially responsible lenders and donors play a key role in providing continuous funding to mc programs and assisting in reducing the level of poverty

time consistent investment policies in markovian markets a case of mean variance analysis abstract the optimal investment policy for a standard multi period mean variance model is not time consistent because the variance operator is not separable in the sense of the dynamic programming principle with a nested conditional expectation mapping we develop an investment model with time consistency in markovian markets furthermore we examine the differences of the investment policies with a riskless asset from those without a riskless asset analytical solutions for time consistent optimal investment policies and the resulting mean variance efficient frontier are obtained finally using numerical examples we show that the optimal investment policy derived from our model is more efficient than that of the standard mean variance model in which the trade off is determined between the mean and variance of the terminal wealth

peer monitoring and credit markets a major problem for institutional lenders is ensuring that borrowers exercise prudence in the use of the funds so that the likelihood of repayment is enhanced one partial solution is peer monitoring having neighbors who are in a good position to monitor the borrower be required to pay a penalty if the borrower goes bankrupt peer monitoring is largely responsible for the successful financial performance of the grameen bank of bangladesh and of similar group lending programs elsewhere but peer monitoring has a cost it transfers risk from the bank which is in a better position to bear risk to the cosigner in a simple model of peer monitoring in a competitive credit market this article demonstrates that the transfer of risk leads to an improvement in borrowers welfare

the consumption function in macroeconomic models a comparative study 1984 the consumption function in macroeconomic models a comparative study applied economics vol 16 no 6 pp 799 838

excess labour and the business cycle a comparative study of japan germany the united kingdom and the united states against the background of firm specific human capital theory this paper investigates empirically the relative propensity of manufacturing industries in japan germany the united kingdom and the united states to hold excess labour over the business cycle both stock and utilization dimensions of the labour input are integrated into the study throughout discussion is linked to earlier research that has analysed the relative international performance of the japanese labour market

forecasting aggregate consumers expenditure in the u k using the dhsy model the performance of the dhsy model in predicting the growth of aggregate consumers expenditure in the uk over the period 1985 1988 is examined the model is applied to four different combinations of consumption variable and data type results show in all cases the predictive performance of the dhsy model to be poor however applied to seasonally adjusted data an improvement can be achieved by allowing for systematic variation in coefficients in particular a variable coefficient dhsy model displays no tendency to underpredict the growth of total consumers expenditure and accurately captures the volatility of non durable expenditure

group lending under asymmetric information abstract this paper examines joint liability loan contracts as part of a screening mechanism adopted by lenders using group lending schemes a model and one period game are introduced in order to analyze the type of optimal loan contracts that emerge when lenders have less information than borrowers it is shown that under imperfect information lenders may be able to utilize joint liability contracts as a means of screening agent types by inducing endogenous group formation and self selection among the borrowers

the appropriate scale variable in the u s money demand an application of nonnested tests of consumption versus income measures the purpose of this article is to employ several nonnested procedures to empirically test the proposition put forward by mankiw and summers that consumption rather than income is the appropriate scale measure in the money demand function real income real disposable income consumer spending on nondurables personal consumption expenditures and total private spending are tested as candidates for the scale variable tests are carried out for both m1 and m2 concepts of money the results based on both m1 and m2 support the mankiw summers position but the results based on m2 are not as strong as those based on m1 implications for fiscal and monetary policies are discussed

the policy implications of deflationary tax cuts 1990 the policy implications of deflationary tax cuts applied economics vol 22 no 6 pp 719 722

money demand heterogeneity and the great moderation abstract a forward looking model of the demand for money based on heterogeneous and sluggish portfolio adjustment can simultaneously account for the low short run and high long run semi elasticities reported in the literature the parameter estimates from the model for the short run and long run interest semi elasticities are 1 04 and 13 16 respectively a simulated version of the model suggests that the great moderation can be partially attributed to financial innovations in the late 1970s when moving toward a more flexible portfolio the model can account for almost one third of the observed decline in the volatilities of output consumption and investment

monetary independence under bretton woods perspectives from a stochastic maximizing model research based on the kouri porter 1974 model of international capital flows suggests that the central banks of nonreserve countries enjoyed considerable monetary independence during the bretton woods era this paper is a theoretical and empirical reassessment of this conclusion using a stochastic maximizing model it is shown that the existence of imperfect asset substitutability does not guarantee monetary control at the empirical level the estimated offset coefficients for four industrialized countries are consistent with zero monetary independence

the stationarity of consumption income ratios evidence from minimum lm unit root testing abstract previous research concerning the stationarity of the consumption income ratio is extended via the application of the minimum lm unit root tests of lee and strazicich 2003 lee j and strazicich m 2003 minimum lm unit root test with two structural breaks review of economics and statistics 85 1083 1089 it is found that incorporation of structural change under the null reverses earlier findings of non stationarity with the unit root hypothesis rejected for all 20 oecd economies examined

cointegration and dynamic time series models abstract this paper provides a survey of some of the recent developments in the field of econometric modelling with cointegrated time series in particular we describe the testing and estimation procedures which have become increasingly popular in the recent applied literature in addition to the two stage procedure proposed by engle and granger we consider extensions to the modelling of dynamic models with cointegrated variables such as the estimation of models with multiple cointegration vectors simultaneous systems models with seasonally integrated and cointegrated variables furthermore we illustrate the practical application of the techniques describes in the paper by means of a tutorial data set

the demand for money in the united states evidence from cointegration tests this paper uses recent cointegration test procedures to investigate the underlying economic relationship between real money balances real income and interest rates for the united states unlike recent studies of money demand the authors analysis uses quarterly data spanning the period 1915 88 thus providing a sample encompassing a wide variety of economic experiences the evidence presented indicates that the broader m2 measure of money is the preferable measure with which to consider the long run effects of monetary policy copyright 1991 by ohio state university press

the uk consumption function and structural instability improving forecasting performance using a time varying parameter approach previous studies indicate that the poor forecasting performance of constant parameter uk consumption expenditure models is caused by structural instability in the underlying data generating process typically this instability is removed by reparameterization within the constant parameter framework an alternative modelling strategy is to allow some or all of the parameters to vary over time a uk non durable consumption expenditure model with time varying parameters is developed based on the permanent income hypothesis of friedman 1957 this model takes into account temporal changes in the average and marginal propensities to consume the variation in the parameter estimates is given an economic interpretation in terms of the influence of omitted variables namely uk financial liberalization and expectational changes the forecasting performance of this model is superior to that of two widely used constant parameter models further tests show that even if these constant parameter models are respeci