optimal inflation tax under precommitment theory and evidence the authors develop and test the orthogonality conditions implied by a dynamic model of the inflation tax a distinguishing feature of the analysis is that the welfare loss from inflation the money demand function and the time path of inflation are jointly derived from first principles of government and private sector intertemporal optimization quarterly data for argentina brazil and israel are used in implementing the model although the overidentifying restrictions of the model are not rejected in most cases there are several data points characterized by higher rates of inflation than the optimal rates under precommitment copyright 1992 by american economic association

money demand and seigniorage maximizing inflation conventional estimates of the seigniorage maximizing inflation rate often make use of the cagan form which implies a constant semielasticity of money demand with respect to inflation this paper shows that the elasticity of substitution in transactions between money and bonds determines how the inflation semielasticity of money demand changes as inflation rises allowing for a variable semielasticity estimates of seigniorage maximizing inflation for a panel of eleven high inflation countries are lower than those obtained by using the cagan form estimates based on the correct measure of the opportunity cost of money also differ sharply from those obtained when using conventional inflation measures copyright 1995 by ohio state university press

improvement of technical efficiency of firm groups abstract cooperation between firms can never improve the technical efficiency of any firm coalition the directional distance function by virtue of its additive nature is a useful tool that outlines this impossibility in this paper the additive aggregation scheme of input output vectors is generalized according to an aggregator accordingly cooperation between firms may increase the technical efficiency of the firm group this improvement is shown to be compatible with nonjoint semilattice technologies that bring out either output or input weak complementarity firm games are investigated to show that firms may merge on the basis of their inputs due to constraints imposed on outputs conversely they may merge with respect to the outputs they can produce because of limitations imposed on inputs

the influence of seasonal adjustment on the canadian consumption function 1947 1991 cointegration tests typically rely on seasonally adjusted data cointegration tests are applied in this paper to seasonally unadjusted data the main objective of the paper is to test the permanent income hypothesis using canadian data the authors find that the unit root at the zero frequency found in seasonally adjusted data is also present in seasonally unadjusted data however there is considerable evidence for the presence of seasonal unit roots although there is support for the permanent income hypothesis for seasonally adjusted data the same hypothesis is rejected for seasonally unadjusted data

information sharing in dea a cooperative game theory approach abstract in this paper a cooperative dea game is proposed based on the idea that different organizations can gain if they share data on the input consumption and output production of their processing units a larger data sample allows a more complete description of the production possibility set and consequently of the efficient frontier however since not all organizations will benefit in the same way it is convenient to use cooperative game theory in order to share the benefits of the cooperation the proposed cooperative dea game is shown to be subadditive and balanced models for computing the value of the game and checking its stability taking into account the exponential number of coalitions that exist when the number of organizations is large are also presented the approach is illustrated with a dataset from the literature

inflation before and after central bank independence the case of colombia abstract in this paper we model the colombian inflation rate in terms of excess demand effects from asset goods and factor markets in contrast to previous results for a group of industrial economies we find that domestic factors are a far more powerful influence on inflation than are external factors the paper pays particular attention to the potential effects of the constitutional reform of 1991 which created a central bank independent from other parts of government we find that the creation of an independent central bank did change some of the parameters of the model as the disequilibria in goods and monetary markets were found to have a smaller effect on inflation after central bank independence was granted

the demand for money in developing countries assessing the role of financial innovation traditional specifications of money demand have commonly been plagued by persistent overprediction implausible parameter estimates and highly autocorrelated errors the authors argue that some of these problems stem from the failure to account for the impact of financial innovation they estimate money demand for ten developing countries using various proxies for financial innovations they also assess the relative importance of this variable finding financial innovation can be better modeled as a stochastic random walk trend rather than a deterministic time trend financial innovation plays an important role in determining fluctuations of the demand for money the importance of this role increases with the rate of inflation

ppp exchange rate rules macroeconomic in stability and learning in order to maintain competitiveness governments in developing economies seem to have pursued purchasing power parity ppp exchange rate rules by adjusting the nominal devaluation rate in response to real exchange rate deviations from an intermediate target this article shows that these rules are likely to induce macroeconomic instability as they generate sunspot driven fluctuations that are in fact learnable by agents in the expectational stability sense it finds that the existence of these learnable sunspots depends among others on open economy features including the degree of openness and the degree of exchange rate pass through to consumer s import prices

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

a cointegrated structural var model of the canadian economy this paper implements a cointegrated structural var model of the canadian economy using quarterly data over the period 1964 1994 the dynamic properties of the estimated model are compared to the predictions of a simple textbook macro model four long run equilibrium relationships are tested i consumption income ii consumption wealth iii money demand and iv the fisher equation the empirical results obtained are generally consistent with the predictions of the textbook model s long run implications although level shifts are observed in the consumption income and the wealth income ratios similarly it is found that there was an increase in the ex post real interest rate implying a level shift in the fisher relation following the bank of canada s policy change towards a stable price level target

german dominance in the ems evidence from interest rates abstract the paper presents an empirical analysis of german dominance and asymmetries in the ems based on a dynamic system of equations explaining national money market interest rates the hypothesis of strict german dominance of the ems is rejected however there are some noticeable asymmetries in the ems germany is a relatively strong player and has been the least dependent country in the early phase of the system since 1983 german independence has diminished in contrast france throughout and italy in the early phase of the ems have been relatively weak players in the system

political partisanship and welfare state reform in advanced industrial societies in this article we evaluate two claims made in recent studies of the welfare states of advanced industrial societies first that welfare states have remained quite resilient in the face of demands for retrenchment and second that partisan politics have ceased to play a decisive role in their evolution addressing the first claim we present analysis from a new data set on unemployment insurance and sickness benefit replacement rates for 18 countries for the years 1975 99 we find considerably more evidence of welfare retrenchment during the last two decades than do recent cross national studies second we examine the end of partisanship claim by estimating the effects of government partisanship on changes in income replacement rates in sickness and unemployment programs our results suggest that contrary to claims that partisanship has little impact on welfare state commitments traditional partisanship continues to have a considerable effect on welfare state entitlements in the era of retrenchment

issues involved with the seasonal adjustment of economic time series in the first part of this article we briefly review the history of seasonal adjustment and statistical time series analysis in order to understand why seasonal adjustment methods have evolved into their present form this review provides insight into some of the problems that must be addressed by seasonal adjustment procedures and points out that advances in modem time series analysis raise the question of whether seasonal adjustment should be performed at all this in turn leads to a discussion in the second part of issues involved in seasonal adjustment we state our opinions about the issues raised and review some of the work of other authors first we comment on reasons that have been given for doing seasonal adjustment and suggest a new possible justification we then emphasize the need to define precisely the seasonal and nonseasonal components and offer our definitions finally we discuss criteria for evaluating seasonal adjustments we contend that proposed criteria based on empirical compariso

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

targeting nominal income in a dynamic model the author analyzes the choice of monetary policy rule in a perfect foresight planning model maximizing agents plan their lifetime consumption decisions in the face of two rigidities first households hold money to aid trade second today s price level is inherited from past contracting decisions so that changes in nominal aggregate demand fall on output in the short run given these rigidities the central bank can set real balances in the short run and the author compares two mu percent rules his theoretical results suggest that the choice between fixed money growth and fixed nominal income growth rules is an empirical assessment that depends on the distribution of shocks to the economy copyright 1990 by ohio state university press

implications of consumer heterogeneity in time series estimates of us money demand the money demand function has traditionally been estimated with income and interest rates typically employing quite lengthy time series controversy however surrounds the importance of heterogeneous agents in monetary economics and throughout macroeconomics more generally in particular if proportions of agents with different traits and hence different money demands are changing over time ignoring those changes may bias estimated income and interest elasticities this concern as well as that of appropriate functional form is explored here controlling for consumer heterogeneity has surprising effects on the estimated elasticities of traditional variables

measuring super efficiency in dea in the presence of infeasibility super efficiency data envelopment analysis dea model is obtained when a decision making unit dmu under evaluation is excluded from the reference set because of the possible infeasibility of super efficiency dea model the use of super efficiency dea model has been restricted to the situations where constant returns to scale crs are assumed it is shown that one of the input oriented and output oriented super efficiency dea models must be feasible for a any efficient dmu under evaluation if the variable returns to scale vrs frontier consists of increasing constant and decreasing returns to scale dmus we use both input and output oriented super efficiency models to fully characterize the super efficiency when super efficiency is used as an efficiency stability measure infeasibility means the highest super efficiency stability if super efficiency is interpreted as input saving or output surplus achieved by a specific efficient dmu infeasibility does not necessary mean the highest super efficiency

money demand and exchange rate determination under hyperinflation conceptual issues and evidence from yugoslavia a modified monetary model of exchange rate determination is advanced and tested for the yugoslav hyperinflation of 1992 94 stating that the exchange rate is determined directly in the money market thus implying that private agents due to dollarization denominate their real money holdings in foreign currency empirical evidence supports the advanced model apart from the last seven months of the yugoslav hyperinflation the exact re present value model of the exchange rate is accepted while that of the price level is rejected for the whole period of hyperinflation the modified money demand schedule with money holdings denominated in foreign currency is nonlinear with decreasing semielasticity of money demand

portfolio behaviour in a flow of funds model for the household sector in india we estimate a flow of funds model for the household sector in india within the almost ideal demand system aids framework and examine the demand for money and the substitution effects between money and other financial assets the restricted long run model obtained using cointegration techniques provides stable equilibrium relationship between i 1 variables and broadly satisfies the axioms of rational choice in consumer demand theory we find that financial sector reform exerts a significant impact on the interest rate structure and household portfolio preferences specifically there is strong substitutability among risk free assets and a possible speculative effect in the stock market while the exchange rate strongly influences the demand for money these findings all have important policy implications

the optimal inflation tax when money reduces transactions costs abstract it has been argued that if money acts as an intermediate good the optimal inflation tax is zero this paper reexamines such a claim in the context of a model in which money reduces transactions costs it is shown that modeling money as an intermediate good does not necessarily imply that the optimal inflation tax is zero the optimality of a zero inflation tax depends on the properties of the transactions costs technology in particular if the transactions costs technology does not exhibit constant returns to scale it is optimal to resort to the inflation tax

exchange rates policy convergence and the european monetary system in this paper we use a recently developed multivariate cointegration technique to analyze the degree of policy convergence of ems member relative to that of some non ems countries interestingly we find convergence for the nominal and real exchange rates and money supplies of the ems members but not for the non ems countries we also provide some evidence to support the german leadership hypothesis in the context of intra ems monetary policy convergence which accords with anecdotal evidence on the modus operandi of the ems

output trends in ec countries and the implications for transition to monetary union abstract motivated by the current plan for european monetary unification we explore the degree of shared real per capita output trends among ec countries using johansen s 1988 maximum likelihood approach for estimating long run relations in multivariate vector autoregressive models the evidence is interpreted in favor of the current plan for european economic and monetary union

new estimates of the canadian money stock 1871 1967 in this paper the authors construct historical data series beginning in 1871 for canadian m1 m2 and monetary base the new series are at a monthly frequency and use the bank of canada s definition of the monetary aggregates institutional and reporting changes however make perfect backwards extrapolation of the bank s series impossible there are only end of month data rather than average weekly since january 1994 daily data and the authors cannot precisely match savings accounts at chartered banks and trust companies that are included in the modern monetary aggregates their adjustments for these changes and their impact on the aggregates are documented

dea production games abstract in this paper linear production games are extended so that instead of assuming a linear production technology with fixed technological coefficients the more general non parametric dea production technology is considered different organizations are assumed to possess their own technology and the cooperative game arises from the possibility of pooling their available inputs collectively processing them and sharing the revenues two possibilities are considered using a joint production technology that results from merging their respective technologies or each cooperating organization keeping its own technology this gives rise to two different dea production games both of which are totally balanced and have a non empty core a simple way of computing a stable solution using the optimal dual solution for the grand coalition is presented the full cooperation scenario clearly produces more benefits for the organizations involved although the implied technology sharing is not always possible examples of applications of the proposed approach are given

multivariate estimates of the permanent components of gnp and stock prices the economic assumption that a present value relation holds between consumption and income and between stock prices and dividends or the statistical assumption that the consumption income ratio and the dividend price ratio are stationary imply that the permanent or random walk component in each series of a pair must be the same as the permanent component in the other series of a pair either assumption then allows us to estimate the variance of the permanent component of one series gnp stock prices from the variance of the permanent component of the other consumption dividends or from the covariance of the two series permanent components this paper presents such estimates and finds that the permanent components are about half those estimated by similar univariate methods a series of recent papers has examined the importance of a potential unit root to the behavior of real gnp campbell and mankiw 1986 1987 cochrane 1986 clark 1987 and stock prices fama and french 1986 lo and mai if by 0 the series is stationary the response can be any real number which is the innovation in these estimates instead of forcing us to ask the dichotomous question is there a unit root or not they allow us to continuously measure the importance of a potential unit root the actual estimating technique used in these papers varied somewhat cochrane poterba and summers and lo and mai if a series is stationary the variance of k differences will tend to a precursor to this paper appeared under the title spectral density estimates of unit roots we thank masanao aoki lam hansen masao ogaki and chris sims for helpful suggestions the computer programs and data used in this paper are available on request from the authors

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 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

linear programming models for firm and industry performance programming models of technology are enjoying a revival in several strands of literature one such strand is the growing literature devoted to the assessment of firm performance based on the work of farrell 1957 and the later popularized by charnes cooper and rhodes 1978 under the name of data envelopment analysis dea for an early programming model see boles 1966 a second strand of literature seeks to model the industry production function and is associated with johansen 1972 fbrsund and hjalmarsson 1987 and aigner and chu 1968 a third strand of literature uses programming techniques such as nonparametric tests of regularity conditions in production see afriat 1972 hanoch and rothschild 1972 diewert and parkan 1983 and varian 1984 one of the purposes of this paper is to examine the relationship between the first two areas i e analysis of firm and industry programming models of technology and performance in order to compare the industry and firm models we restate them in a general programming form and ignore issues of functional form examination of these models in primal and dual form reveals that the industry approach constructs technology from firm data but allows hypothetical reallocation of aggregate resources across firms to yield an industry function the firm models also construct technology from the data on all firms in the sample industry but do not allow for reallocation of inputs across firms this suggests a natural hybrid an industry model which allows for both firm specific inputs and inputs which can be reallocated across firms the paper unfolds as follows we begin by presenting a stylized version of the aigner and chu and johansen models of industry production we

how stable is the demand for money in emerging economies one of the key elements of implementing the monetary policy is stability of the demand for money the literature includes a large number of studies that have tested the stability of the money demand in developed as well as less developed countries but not in emerging economies of eastern europe as market based data becomes available from these countries there is an urgency to test old theories for these modern market oriented economies in this article we consider the experiences of armenia bulgaria the czech republic hungary poland russia and the slovak republic using the bounds testing approach to error correction modelling and cointegration we show that money demand is stable in these countries

the price consumption puzzle of currency pegs abstract a defining stylized fact associated with exchange rate based stabilization programs is that their initial phase is characterized by several years of continuous expansion in private consumption and a gradual appreciation of the real exchange rate this paper shows that a large class of standard optimizing models is unable to account for this empirical regularity in particular models in this class predict that a gradual appreciation of the real exchange rate must necessarily be accompanied by a declining path of consumption the paper suggests several possible solutions to this problem and develops one in detail namely the relaxation of the assumption of time separability in preferences specifically it shows that under habit formation currency pegs induce a positive comovement between consumption and the real exchange rate the paper also establishes that habit formation provides an explanation for why in failed currency pegs a contraction in aggregate demand sets in before the collapse of the program

long run income and interest elasticities of money demand in the united states econometric techniques designed to accommodate nonstationary data are used to reexamine the stability of interest and income elasticities of money demand in the united states estimates based on postwar monthly data reveal a stable relationship between m1 velocity and various measures of interest rates that proxy the opportunity cost of holding money balances tests for the existence of cointegration and methods used to estimate the income and interest elasticities are based on procedures prescribed by soren johansen 1988 corresponding error correction estimates offer insight as to the dynamics of the process that maintains the equilibrium relation between velocity and interest rates copyright 1991 by mit press

the economic situation of first and second generation immigrants in france germany and the united kingdom a central concern about immigration is the integration into the labour market not only of the first generation but also of subsequent generations little comparative work exists for europe s largest economies france germany and the uk have all become perhaps unwittingly countries with large immigrant populations albeit with very different ethnic compositions today the descendants of these immigrants live and work in their parents destination countries this article presents and discusses comparative evidence on the performance of first and second generation immigrants in these countries in terms of education earnings and employment it is widely believed that many european countries have a serious problem with the integration of immigrants and their children leed 2006 many northern european countries have accumulated sizeable populations of immigrants but the lack of longterm strategies and policies to integrate these into societal structures and the labour market is often cited as one reason for social and economic exclusion of the children of these immigrants in the past decade southern european countries such as spain and italy have experienced similar if not larger immigrations than the large northern european economies france germany and the uk in the late 1950s to early 1970s again it seems that there is little thought devoted to long term strategies for immigrants and their descendants the experience of those countries that had large scale immigration in the last half of the twentieth century should be of importance for devising future immigration and integration policies however there is rather little hard evidence in the literature about the relative position of immigrants and their descendants in these countries in a manner that allows comparisons to be made in this article we aim to provide a comparative study of a number of outcomes education earnings and employment of both first and second generation immigrants of different origins in the three largest european economies france germany and the uk

asset portfolios and credit rationing evidence from kenya this paper presents a model of the private sector s demand for financial and real assets in kenya for the period 1973 90 the private sector is assumed to hold its wealth in terms of five assets but is quantity rationed in the credit market the model is estimated as a co integrated demand system based on the almost ideal demand system of deaton and muellbauer 1980 the model highlights the role of real asset accumulation in offering a hedge against inflation and the role of credit rationing in the composition of wealth asset markets in developing countries and particularly those of sub saharan africa have typically been subject to controls on prices through interest rate controls and quantities through credit rationing it is natural to ask how these controls affect the level composition and evolution of private sector wealth for example how does the wealth portfolio respond to changes in the level of credit rationing how do controls on nominal interest rates determine the private sector s response to inflation since these questions are not readily addressed using conventional single equation models of money demand this paper examines them within a more general model of portfolio choice in which relative asset price effects and quantity rationing in the market for domestic credit are made explicit the econometric model which is similar to that of taylor and clements 1983 perraudin 1987 and barr and cuthbertson 1991 1992 1994 is based on a dynamic representation of the almost ideal demand system adapted to handle rationing using aggregate time series data for kenya the model characterizes the asset portfolio chosen by a representative private sec tor agent facing a two stage budgeting problem in the first stage the represen tative agent chooses his or her labour supply and consumption and hence the net addition to wealth at the second stage the new stock of wealth adjusted for capital and exchange rate gains or losses is allocated across different assets which in this case consist of money bank deposits and loans the latter being treated as negative assets real assets in the form of equity claims and govern ment securities the demand shares for the components of the portfolio are then estimated within an error correction system of equations the model is estimated on quarterly data for the period 1973 90 2 there are a number of reasons for adopting this particular approach first and most obviously the demand system provides for a more comprehensive description of the evolution of the overall portfolio composition than is poss ible using traditional single equation approaches this is particularly true in

life cycle effects structural change and long run movements in the velocity of money secular movements in the velocity of money in the united states have been puzzling after declining since the civil war velocity defined as the ratio of gross national product to currency plus demand deposits at commercial banks has steadily increased since world war ii by the late 1970s it had increased threefold over its 1946 value largely negating the decline of the previous seventy five years other definitions have also reversed their long run patterns the substantial decline in the ratio of gross national product to money holdings inclusive of time deposits at commercial banks ended in the postwar period as this ratio first rose and then held relatively steady through the 1970s since these trends hold for virtually all sectors of the economy selden 1961 research has sought aggregate explanations commonly the behavior of velocity is inferred from time series studies postulating a stable relationship between the demand for money and aggregate income and interest rates boorrnan and havrilesky 1972 goldfeld 1973 laidler 1969 these studies generally place responsibility for the rise in velocity on some combination of a relatively low income elasticity of the demand for money and a relatively large interest rate elasticity despite its acceptance such an approach is unsatisfying since it neglects the role of long run structural changes in explaining velocity movements thus the literature

what has driven chinese monetary policy since 1990 investigating the people s bank s policy rule abstract post 1990 chinese monetary policy is modeled with an augmented mccallum type rule that takes into account the people s bank of china s emphasis on targeting the rate of money supply growth people s bank policy appears responsive to the gap between target and actual nominal gdp as well as to external pressures additional cointegration analysis yields estimates of the gap between estimated money demand and actual money supply that appear to track the inflationary trends evident over our sample period chinese inflation and monetary policy outcomes seem reasonably captured using a standard monetary approach without the need to appeal to china specific structural factors

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

dollarization in post hyperinflationary argentina abstract this paper analyzes the continued dollarization of the argentine economy which experienced a rapid decline in inflation following its hyperinflations of the 1980s first a measure of dollar currency circulating in argentina is developed thereby improving upon previous studies of dollarization and currency substitution that focused on dollar deposit holdings only second cointegration analysis of peso money demand in argentina finds a negative ratchet effect from inflation the reduction in peso money demand attributable to the ratchet mirrors the estimated stock of all dollar assets held domestically by argentine residents consistent with the hypothesis of irreversible dollarization

the value of time and the transactions demand for money this paper reexamines the hypothesis of dean s dutton and william p gramm and edi karni that the wage rate influences the demand for money as a proxy for the value of transactions time it develops value of time transactions models which yield demand for money equations that have a real wage rate argument and compares it to a non value of time alternative that does not the author finds that the value of time models perform well and that the value of time effect is empirically significant copyright 1990 by ohio state university press

currency substitution and financial innovation this paper explores the domestic effects as well as the international transmission of financial innovation the analysis is carried out in a cash in advance model with two currencies and tw o goods in which income velocity is variable because of inventory type considerations in the determination of the demand for money the discussion emphasizes the role of currency substitution which occur s through the interaction between the two monies in affecting the tota l amount of time devoted to transaction activities the role of cross border transfers of seigniorage in determining the general equilibrium effects of financial innovation is discussed copyright 1993 by ohio state university press

cointegration and unit roots this paper provides an updated survey of a burgeoning literature on testing estimation and model specification in the presence of integrated variables integrated variables are a specific class of non stationary variables which seem to characterise faithfully the properties of many macroeconomic time series the analysis of cointegration develops out of the existence of unit roots and offers a generic route to test the validity of the equilibrium predictions of economic theories special emphasis is put on the empirical researcher s point of view

resurrecting the weak credibility hypothesis in models of exchange rate based stabilization abstract we analyze how weak credibility affects the volatility of consumption spending in a model of exchange rate based stabilization that allows for both durable and nondurable goods the inclusion of durables greatly improves the explanatory power of the weak credibility hypothesis the hypothesis can account for the main qualitative properties of the boom bust cycle provided the elasticity of durables expenditure with respect to tobin s q is greater than the intertemporal elasticity of substitution moreover the quantitative effects are very large in numerical simulations based on conservative assumptions about the expenditure share of durables 20 and wealth effects none aggregate consumption increases 17 22 and the real exchange rate appreciates 24 26 when the crawl decreases from 100 to zero for 3 years in variants of the model that incorporate supply effects the consumption boom is equally strong but appreciation of the real exchange rate rises to 30 40

the advantage of tying one s hands ems discipline and central bank credibility abstract it is often argued that the ems is an effective disciplinary device for inflation prone countries in europe since it forces the respective policy makers to pursue more restrictive monetary policies than they would otherwise it is not clear however why these countries should submit themselves to such discipline this paper argues that to answer this question appropriately one must consider that ems membership brings potentially large credibility gains policy makers in inflation prone countries the reason is that not only it attaches an extra penalty to inflation in terms of real appreciation but makes the public aware that the policy maker is faced with such penalty and thus helps to overcome the inefficiency stemming from the public s mistrust of the authorities

the demand for money in brazil what happened in the 1980s abstract some of cardoso s 1983 money demand specifications are used here the estimates are based on quarterly data for the period 1966 1985 it is shown that due to financial innovation the money demand function shifted downwards in the 1980 s also a comparison is made between the actual demand for money and that predicted by the model during the period in which the economic reforms of the cruzado plan were in force

consumer credit in an era of financial liberalization an overreaction to repressed demand in this article we empirically analyse the factors which determined consumer credit in greece in the period before and after the financial liberalization while accounting for significant changes in structure due to the lifting of credit restrictions and the subsequent impressive boom of consumer loans we use multivariate cointegration techniques to estimate a vector error correction model vecm and identify separate demand and supply relationships for consumer loans we introduce demand and supply related shifts in parameters through the inclusion of appropriate dummy variables and trends in the long run relationships we partly deviate from the typical johansen procedure and estimate the model in two steps we find that the theoretical exclusion and coefficient size restrictions on the demand and supply cointegrating vectors are valid our results are consistent with the operation of a bank lending channel in greece we also find that the supply side was mostly responsible for the acceleration of con

european welfare states and migrant poverty the institutional determinants of disadvantage in almost all european welfare states immigrants face a higher risk of poverty than natives but the gap between the two groups varies in examining this variation our article contributes to the nascent literature on the impact of welfare states on immigrants we hypothesize that whether immigrants benefit from welfare generosity depends on three intervening factors immigration policy labor market regulation and welfare eligibility rules we use fuzzy set analysis to examine the interplay of these determinants in 16 west european states the findings show that in most countries a high migrant disadvantage results from the combination of a large share of humanitarian and family immigrants and generous social policies the underlying mechanism is that unwanted immigrants are institutionally impeded from full access to generous welfare states

efficient firm groups allocative efficiency in cooperative games abstract the concept of efficiency in groups postulates that a coalition of firms has to record a smaller distance toward the aggregate technology frontier compared with the sum of individual distances efficiency analysis either allocative or technical is defined with respect to cooperative firm game in order to provide operational distance functions the so called pseudo distance functions these pseudo distances belong to the core interior of the allocative firm game in other terms any given firm coalition may always improve its allocative efficiency we prove that such a result is impossible for technical efficiency i e the technical efficiency cannot increase for all possible coalitions

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

income velocity and institutional change some new time series evidence 1870 1986 this paper applies tests of cointegration to assess whether institutional factors in addition to income and an interest rate explain the long run behavior of velocity over a century of annual data from five industrialized countries are used institutional characteristics make a significant contribution to the determination of velocity in all the countries considered one generally rejects the hypothesis of cointegration between velocity and its traditional determinants but the same hypothesis cannot be rejected when velocity is also a function of institutional change proxies tests of coefficient stability also reinforce the validity of the institutional change hypothesis of velocity copyright 1993 by ohio state university press

the seasonal cycle and the business cycle almost all recent research on macroeconomic fluctuations has worked with seasonally adjusted or annual data this paper takes a different approach by treating seasonal fluctuations as worthy of study in their own right our results show that seasonal fluctuations are an important source of variation in all macroeconomic quantity variables but are small or entirely absent in both real and nominal price variables the timing of the seasonal fluctuations consists of increases in the second and fourth quarters a large decrease in the first quarter and a mild decrease in the third quarter the paper demonstrates that with respect to each of several major stylized facts about business cycles the seasonal cycle displays the same characteristics as the business cycle in some cases even more dramatically than the business cycle that is we find that at seasonal frequencies as well as at business cycle frequencies output movements across broadly defined sectors move together the timing of production and the

a heterogeneous model of disposition effect a portfolio choice model is provided to illustrate the disposition effect under irrational belief in mean reversion assumption higher cognitive reference stronger irrational belief in mean reversion magnitude and less risk aversion all strengthen the disposition effect in the model the equilibrium market interest rate is priced after the market clearing condition is employed the grater disposition effect reduces the capital mobility from the stock market to the bond market and thus mitigates the dropping of the market interest rate

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

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

the persistence of interest rate effects on the demand for currency note since the end of world war ii there has been a trend decline in the demand for real currency balances part of the decrease is due to the rise in interest rates to unprecedented heights yet this is not the complete answer since a trend term included in a simple and conventional currency demand equation that already includes an interest rate still emerges with a significant negative coefficient for example using quarterly data from 1950 i to 1981 iii a demand for currency equation can be estimated as

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

aggregation of malmquist productivity indexes in this paper we extend the work of fare and zelenyuk 2003 on aggregate farrell efficiency scores european journal of operational research 146 3 615 620 to find a theoretically justified method of aggregating malmquist productivity indexes over individual decision making units firms countries etc into a group malmquist productivity index we also consider the aggregation of decomposed parts of the malmquist productivity index to obtain a decomposition of the malmquist productivity index for a particular group c 2005 elsevier b v all rights reserved

breaks in money demand during the last twenty years beginning with the provocative paper by goldfeld 5 that revealed the case of the missing money the question of whether money demand the relationship between money income and an interest rate is stable has been intensively investigated using a variety of econometric techniques currently the most popular framework for examining the behavior of money demand is the cointegration framework in this framework the stationarity of money demand instead of the stability of money demand is evaluated earlier tests of the stability of money demand typically centered on whether the coefficient estimates were stable i e not subject to a structural break these tests did not consider the underlying time series aspects of the variables in money demand or the time series properties of their joint relationship prior to estimation as is now common given the seminal work of engle and granger 1 since then newer tests have focussed on the time series properties of the money demand variables and whether the joint relationship between the variables is stationary i e whether the variables are cointegrated engle and granger 1 and johansen and juselius 10 offer cointegration estimation procedures that have been applied by numerous researchers to the money incomeinterest rate relationship the pervasive finding is that money demand is non stationary see section ii below structural stability has not typically been a facet of investigation however the issues of stationarity and stability should not necessarily be treated independently failure to take account of structural change may bias the results in favor of non stationarity as shown in perron 16 1 history suggests that the economic environment and monetary institutions regulations and operating procedures have changed over time in the early 1970s the fixed exchange rate system collapsed when the gold exchange standard was abandoned and the u s dollar became a fiat currency during that same time the u s suffered an oil price shock that produced accelerating inflation and stagnant gdp growth an outcome that had never before been experienced in

institutional hypothesis of the long run income velocity of money and parameter stability of the equilibrium relationship it has recently been argued that when the conventional specification of m2 income velocity is extended to include proxies for two types of institutional change as emphasized by bordo and jonung 1987 1990 corresponding to the processes of monetization and increasing financial sophistication of financial developments this extended model is stable in the sense that one can reject the null hypothesis of no cointegration against the alternative of a single cointegrating vector there may be implications that such an equilibrium relation is a structural income velocity of money function the evidence based on century long data from 1880 to 1986 presented in this paper about parameter instability of the cointegrating vector of velocity with its determinants for canada norway sweden and the united kingdom casts doubt on this interpretation the evidence is based on using formal stability tests moreover it has an eyeball support from the sequential estimates of various parameters of the cointegrating relationship including income and interest semi elasticities

democratic limits to redistribution inclusionary versus exclusionary coalitions in the knowledge economy the knowledge economy deindustrialization and the decline of fordism have undermined the economic complementarities that once existed between skilled and semiskilled workers the result has everywhere been a decline in coordinated wage bargaining and unionization and a notable rise in labor market inequality yet the political responses have been very different across advanced democracies while labor markets for part time and temporary employment have been deregulated across the board some countries have compensated losers through increased cash transfers and active labor market programs and others have allowed inequality and insider outsider divisions to grow deeper the article argues that the divergent government responses reflect differences in underlying electoral coalitions and that these in turn mirror the structure of party and electoral systems the authors support their argument with evidence for government responses to economic shocks in the period 1980 to 2010

nominal interest rates consumption booms and lack of credibility a quantitative examination abstract exchange rate based stabilization programs in chronic inflation countries have often been accompanied by an initial expansion of private consumption followed by a contraction this consumption cycle has been attributed to lack of credibility in the sense that the public views the reduction in the devaluation rate as temporary this paper assesses the quantitative relevance of the temporariness hypothesis by comparing the predictions of a simple model to the actual figures for seven major programs the paper concludes that nominal interest rates must fall substantially for the temporariness hypothesis to account for an important fraction of the observed consumption booms

sterilization of short term capital inflows through lower interest rates reductions in international interest rates are a major cause of capital flows to emerging economies increases in domestic interest rates are a frequent policy response to the resulting price increases this is often unsuccessful the paper suggests a theoretical explanation based on distinctive features of emerging financial markets including imperfect asset substitutability and imperfect capital mobility for some sectors of the economy it concludes that the appropriate policy response to capital inflows may be lower interest rates

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 long run behavior of the income velocity of money in five advanced countries 1870 1975 an institutional approach the income velocity of money in canada the united states great britain norway and sweden displays a u shaped pattern over the last one hundred years this paper presents and tests empirically an explanation for this secular pattern emphasizing the influence on velocity of institutional changes the inclusion into a simple velocity function of institutional developments such as the process of monetization the spread of commercial banking financial development and the growth of economic stability improves the explanation of long run movements in velocity provided by a regression of velocity on real permanent income per head and the interest rate

some qualms about the test of the institutionalist hypothesis of the long run behavior of velocity this paper expresses econometric qualms about bordo and jonung s 1981 analysis of long run velocity they did not recognize that for u s and canadian data the log of velocity has a unit root hence estimation of a log level regression may produce spurious regressions when bordo and jonung s velocity equation is reestimated in rate of change form permanent income is significant contrary to their earlier conclusion moreover using this approach gives a stronger result for one of the institutional variables in the velocity function in the sense that the remaining variables become more significant

determinants of relative poverty in advanced capitalist democracies using relative poverty measures based on micro level data from the luxembourg income study in conjunction with pooled time series data for 14 advanced capitalist democracies between 1970 and 1997 the authors analyze separately the rate of pretax transfer poverty and the reduction in poverty achieved by systems of taxes and transfers socioeconomic factors including de industrialization and unemployment largely explain pre tax transfer poverty rates of the working age population in these advanced capitalist democracies the extent of redistribution measured as poverty reduction via taxes and transfers is explained directly by welfare state generosity and constitutional structure number of veto points and the strength of the political left both in unions and in government

on multi decomposition of the aggregate malmquist productivity index abstract the purpose of this paper is to demonstrate the multi decomposition of the aggregate malmquist productivity index that is a combined decomposition both by attribute which is characterized by technical change or efficiency change and by firm

a long run view of german dominance and the degree of policy convergence in the ems i introduction when the european monetary system ems was established in march 1979 the member countries agreed to gradually move to a european monetary union emu at the maastricht summit on december 9 10 1991 the member nations signed an agreement outlining the requirements and a timetable for monetary union building upon the framework specified in the 1989 delors report the maastricht agreement outlines a three stage transition to a common european monetary policy 1 the achievement of a high degree of monetary policy convergence among the member countries is crucial if a common monetary policy is to be initiated the ems already provides a framework in which monetary policy actions can be coordinated but have member nations actually coordinated their actions or have they conducted independent policies some have claimed that the bundesbank has dominated monetary policy in the ems one explanation is that by tying domestic monetary policy to that of germany other countries policymakers enhance their own credibility for instance giavazzi and pagano 1988 have argued that because the bundesbank is known to follow a consistent credible anti inflation policy tying policy to that of germany should enhance one s reputation a natural question to ask therefore is to what degree have monetary policies in the ems converged to that conducted by germany a finding of complete convergence among ems monetary policies would imply that the member countries have converged to one common monetary policy in studies examining the credibility hypothesis which clearly is linked to the notion of monetary policy convergence fratianni and von hagen 1990c and burdekin westbrook and willett 1993 rejected this hypothesis 2 to consider the prospects for the success of emu one must know whether and to what degree there has been a transmission of policy actions within the ems the question of whether germany has set the direction of monetary policy for the ems is a natural focus and has been the subject of recent study fratianni and von hagen 1990a 1990b 1990c von hagen and fratianni 1990 and kutan 1991 1992 all reject the hypothesis that german monetary policy actions dominate the monetary policy decisions of other ems countries 3 while germany is found to be an important player in setting monetary policy its actions are not independent of other members in contrast to this conclusion karfakis and moschos 1990 and macdonald and taylor 1991 argue that non german ems members policies are related closely to german policy changes and that german policy actions do not respond to those taken by the central banks of other ems countries this study tests for policy convergence among ems countries within a long run framework using cointegration procedures using both short term interest rates and the monetary base as measures of monetary policy our aim is to determine the number of shared common stochastic trends among ems monetary policies and test whether a complete convergence of policies has been achieved in the ems rejection of complete convergence a finding of two or more shared common trends indicates that some countries policies are set independently at least in the long run if this is true then the notion that the bundesbank dominates ems policy is rejected such a result also suggests that any credibility gain from tying policy to that of germany is probably outweighed by other considerations such as domestic growth or international competitiveness looking ahead our results indicate that ems monetary policies have not converged we also investigate the short run connection among policy measures using a longer sample than in previous work our results from this analysis indicate that while german policy actions influence monetary policy in other ems countries in the short run there is substantial policy interaction among ems members the format of the paper is as follows section ii discusses some methodological issues concerning the use of interest rates and the monetary base as indicators of policy actions

currency substitution new evidence from emerging economies abstract this paper provides new empirical evidence for currency substitution in different emerging market economies estimation results from a money in the utility function framework indicate that foreign currencies are strong substitutes for domestic currency in producing liquidity services

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

money demand in a high inflation economy the case of israel money demand plays a central role in recent models of rapid inflation and stabilization which are highly relevant to the israeli economy this paper uses co integration analysis to estimate money demand in israel we find that money demand shifted at the beginning of the 1980s probably as a result of increased use of liquid indexed assets which provide protection against high inflation in the previous two decades the equation was a fairly conventional u s type logarithmic function in the last decade the equation has had a lower constant and has exhibited less sensitivity to interest rate changes in both periods the nominal rate of interest and real private consumption have been co integrated with real m1 balances and interest elasticity has been less than unity copyright 1994 by mit press