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

banking in computable general equilibrium economies abstract in this paper we develop a computable general equilibrium economy that models the banking sector explicitly banks intermediate between households and between the household sector and the government sector households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement banks pool households savings and they purchase interest bearing government debt and non interest bearing reserves we use this structure to answer two sets of questions one normative in nature that evaluates the welfare costs of alternative monetary and tax policies and one positive in nature that studies the real effects of following a procyclical interest rate policy rule

the fisher equation controversy a reconciliation of contradictory results where r is the real interest rate assuming that the real interest rate is constant the above equation yields the fisherian prediction of co plete adjustment di dit 1 fisher s empirical findings however indicated only a partial adjustment of nominal interest rates to inflation expectations the contradiction between fisher s theoretical and e pirical findings was confounded further by mundell 11 and tobin 19 who provided theoretical results consistent with fisher s empirical finding of partial adjustment the fascination with deriving theoretical results consistent with fisher s empirical finding continues sargent 14 15 16 visco 20 and fried and howitt 8 have all attempted to provide theoretical justification for the partial adjustment result

financial firm production of monetary services a generalized symmetric baroett variable profit function approach an alternative monetary production model of financial firms is employed to investigate supply side monetary aggregation financial firms are conceived to produce monetary services as outputs through financial intermediation a new method for testing the existence of consistent monetary output aggregates in financial firms production technology is developed in terms of a multiproduct firm s variable profit function and the method does not require homotheticity of the aggregator function we use a generalized symmetric barnett flexible functional form that specification satisfies global curvature conditions and retains its flexibility under the null hypothesis of weak separability neither of those properties is possessed by other flexible functional forms

the optimal structure of liquidity provided by a self financed central bank self financed central banks without capital and taxes cannot pay the return on capital to both money and national debt the gaps between the returns on capital and public securities are implicit taxes which are shifted forward to commodities that people finance with these securities because taxes on investment are less efficient than taxes on consumption the national debt should earn interest if people use it to finance expenditures that are investment intensive also because money provides short term liquidity raising the return on national debt delays expenditure to the future hence paying interest on national debt brings a resource windfall during transitions

does money matter in the euro area evidence from a new divisia index we create a euro area divisia money dataset and estimate theoretically correct responses to money user cost and interest rate shocks using structural vector autoregressions our findings suggest that money matters for output prices and interest rates while the european central bank can influence monetary developments

monetary policy and liquid government debt abstract we examine the conduct of monetary policy in a world where the supply of outside money is controlled by the fiscal authority a scenario increasingly relevant for many developed economies today central bank control over the long run inflation rate depends on whether fiscal policy is ricardian or non ricardian the optimal monetary policy follows a generalized friedman rule that eliminates the liquidity premium on scarce treasury debt we derive conditions for determinacy under both fiscal regimes and show that they do not necessarily correspond to the taylor principle in addition non ricardian regimes may suffer from multiplicity of steady states when the government runs persistent deficits

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

the empirical relationship between money prices and income revisited this article investigates the relationship between sum divisia and monetary velocity money prices and income using the notion of granger 1969 causality this is achieved by evaluating empirically using dickey fuller unit root tests whether the macroeconomic time series under consideration are trend stationary or difference stationary and by conducting tests using three different ad hoc lag lengths 8 6 and 4 quarters as well as a statistically determined using akaike s 1969a b final prediction error criterion lag structure

a composite leading indicator of the inflation cycle for the euro area we evaluate the performance of composite leading indicators of turning points of inflation in the euro area constructed by combining the techniques of fourier analysis and kalman filters with the national bureau of economic research methodology in addition the study compares the empirical performance of euro simple sum and divisia monetary aggregates and provides a tentative answer to the issue of whether or not the uk should join the euro area our findings suggest that first the cyclical pattern of the different composite leading indicators very closely reflect that of the inflation cycle for the euro area second the empirical performance of the euro divisia is better than its simple sum counterpart and third the uk is better out of the euro area 2005 taylor francis group ltd

the mirage of floating exchange rates this note summarizes some of the highlights of my longer paper with guillermo calvo fear of floating many emerging market countries have suffered financial crises one view blames soft pegs for these crises adherents to that view suggest that countries move to corner solutions hard pegs or floating exchange rates we analyze the behavior of exchange rates reserves and interest rates to assess whether there is evidence that country practice is moving toward corner solutions we focus on whether countries that claim they are floating are indeed doing so we find that countries that say they allow their exchange rate to float mostly do not there seems to be an epidemic case of fear of floating

the changing empirical definition of money some estimates from a model of the demand for money substitutes interest bearing checkable deposits are examined to test whether they should be included in measures of the u s money stock both divisia and traditional simple sum aggregates are constructed on the basis of tests for weak separability in a model of the demand for financial assets using nonparametric demand analysis we find that several groups of assets are compatible with aggregation theory we find empirical support for a narrow measure consisting of the components of current mia in tests based on a st louis equation and in terms of controllability a divisia aggregate performs better than the simple sum mia measure

fighting inflation with high interest rates the small open economy case under flexible prices in high inflation countries policymakers often end up paying interest on part of the money supply higher interest rates on money have been used both to reduce inflation and to defend the domestic currency this paper analyzes the effectiveness of such a policy in the context of an open economy with flexible prices and exchange rates a temporary increase in the interest rate on money reduces the price level on impact but inflation follows an explosive path afterwards the domestic currency appreciates on impact but begins to depreciate immediately thereafter hence the analysis does not support the use of high interest rates in disinflationary programs copyright 1995 by ohio state university press

on the estimation of demand systems through consumption efficiency we consider a bayesian implementation of a new approach to estimating demand systems this approach suggested by varian 1990 is based on a generalization of afriat s 1967 e ciency index the model we propose leads to a very tractable posterior and predictive analysis yet allows for interesting economic interpretations we conduct a sensitivity analysis with respect to the prior in an application to annual aggregate u s consumption data and conclude that the sample is quite informative average e ciency and expected budget shares are examined in some detail

expected inflation and interest rates in a multi asset model a note this paper analyzes the effect of expected inflation on nominal interest rates in a theoretical model with money and two different bond types the inclusion of three assets instead of the usual two causes the effect of expected inflation on the interest rates to deviate from unity depending on the sizes of the wealth and interest rate effects on the various asset demands the effect of expected inflation could even be negative several special cases are also considered and the implications for the interpretation of empirical results are discussed the profession has shown a continuing strong interest in the effect of expected inflation on interest rates both from a theoretical and an empirical perspective fisher s 6 original hypothesis was that there should be a one forone effect so that expected inflation has no effect on the ex ante real interest rate numerous researchers have failed to find that strong an empirical effect on nominal rates however and some have expressed puzzlement over this empirical result the empirical literature includes 1 2 3 5 6 10 13 14 and numerous others theoretical models generally consider a short run situation in which the real rate of return on financial assets is free to deviate from the marginal product of capital the simplest possible such macro model with is lm and vertical aggregate supply curve equations generates the fisher result that dr dir the effect of expected inflation r on the nominal interest rate r equals unity but there are several possible modifications to this model which can drive the value of dr dir either up or down first the mundell 12 effect states that the presence of a real balance effect

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

an admissible monetary aggregate for the united kingdom this paper evaluates the performance of a monetary aggregate that is constructed from principles of economic and index number theory results from tests for weak separability indicate that wholesale deposits should not be aggregated with other u k financial assets they currently are included however in broad monetary aggregates published by the bank of england financial asset groupings passing the weak separability tests then were aggregated using both simple sum and divisia weights in each case the divisia aggregates were more closely related to the growth of nominal gdp and had stable demand for money functions copyright 1991 by mit press

u s treasury bill forward and futures prices for the period 1976 87 forward rates on u s t bills averaged more than 30 basis points above the comparable futures market rates since risk is common to both rates i argue that this difference can be explained by the substitutability of different maturity t bills for money consistent with this hypothesis i find that this difference depends positively on interest rates and the spread between the federal funds and 3 month t bill rates and negatively on the ratio of short term governments to broadly defined money also significant shifts occurred in the relationship in october 1979 and august 1982 coinciding with changes in federal reserve operating procedures copyright 1994 by ohio state university press

balanced budget constraints and the time consistency of optimal policy in a non ricardian economy it has become increasingly apparent that some optimally determined monetary and fiscal policies may be time inconsistent if governments are allowed full discretion over time this is to say that at any point in time a government s announced commitment to a time path of its monetary and or fiscal instruments which seems optimal at the initial date may provide the government with the incentive to renege on the pre announced policy commitment upon re evaluation at a future date the often cited example 8 is of a government which inflates initially to minimize the current reliance on distortionary labour income taxes but promises reduced inflation in the future at a later date it finds it optimal to re evaluate the commitment and initiates a surprise inflation acquiring revenue in a relatively nondistortionary manner if the government s optimal policy is time inconsistent it will not likely be credible from the private sector s perspective as rogoff 16 has described some authors have suggested that the time inconsistency problem may be resolved if the private sector is able to impose reputational costs on the government for reneging on pre announced policies if the cost associated with the loss of reputation is sufficiently high the government may adopt consistent but sub optimal policies while consideration of reputational costs may yield a policy which is time consistent it may be a second best among the set of consistent policies for example a number of authors have suggested 2 3 16 optimal discretionary policies derived when the government is bound by a rule may be consistent and preferred to the optimal unconstrained discretionary policy imposition of the rule creates a pareto improvement since it alleviates the government s incentive to cheat and therefore reduces the social cost of the private sector s reputational enforcement the difficulty with this solution is to derive the appropriate rule the trivial solution is to commit the government to its optimal plan derived at the initial date however this type of rule relieves the government of any discretion after the policy is announced and it is unlikely that any government would restrict its discretionary powers to that extent a preferable rule would be one which restricts only

rationality testing under asymmetric loss abstract this paper shows that if agents have an asymmetric loss function standard empirical tests for the rationality of their expectations are in general invalid we further show that under a popular class of asymmetric loss functions the linex family a valid test can be carried out by estimating an appropriate arch in mean model the contrast between the standard test and our arch m test is illustrated using the goldsmith nagan forecasts of us treasury bill yields

exchange rate based inflation stabilization the initial real effects of credible plans abstract this paper studies the initial effects of exchange rate based stabilization programs within a dynamic general equilibrium model of a small open economy in which inflation acts as a tax on intermediate transactions and capital accumulation is subject to convex adjustment costs and gestation lags the model replicates the typical pattern of slow inflation convergence sustained real exchange rate appreciation trade balance deterioration and expansion in domestic spending followed by a deflationary slowdown without resorting to sticky prices imperfect credibility or adaptive expectations calibrated versions of the model are compared with the initial effects of the argentine convertibility plan of april 1991

which road leads to stable money demand this paper denies that the demand for money function is any more unstable than other demand functions and maintains that the controversies regarding unstable money demand are produce by poor methodology that is not shared by other areas of the field of economics when investigating demand function properties this abstract was borrowed from another version of this item

the effects of inflation on real interest rates one of the most obvious facts of recent monetary history is that high inflation is associated with high nominal interest rates this association has been interpreted by many as supporting a superneutrality hypothesis that an increase in inflation will not affect real interest rates in the long run however the bulk of the evidence contradicts superneutrality beginning with irving fisher 1896 1930 most empirical investigations have found that fully anticipated inflation has less than a unit effect on nominal interest rates and thus reduces real interest rates even in the longest of runs this has been shown under the assumption that expectations are formed rationally douglas pearce 1979 that they take the form of an arbitrary distributed lag on past inflation rates fisher 1930 william gibson 1970 or that they are accurately represented by the livingstone expectations data pearce kajal lahiri 1976 lawrence summers 1983 attempted to measure the long run effect without an explicit theory of expectations regressing long swings in various nominal interest rates against long swings in inflation over various subintervals from 1860 to 1979 he found coefficients consistently less than unity for the post world war ii era as a whole the coefficients were in the range of 0 5 to 0 75 with standard deviations of 0 08 to 0 33 a few studies have found coefficients close to unity william yohe and denis karnosky 1969 martin feldstein and otto eckstein 1970 gibson 1972 lucas but as several authors have observed thomas sargent 1976 robert shiller 1980 john wood 1981 summers these findings are limited to a particular period of u s history approximately 1953 71 furthermore even a unitcoefficient would contradict superneutrality of the after tax real interest rate which would require a coefficient substantially greater than unity even taking into account the other inflation distortions in the tax system summers calculated that the coefficient ought to lie in the range of 1 3 to 1 5 far higher than observed these empirical findings pose a challenge to traditional monetary theory much of which implies that superneutrality should hold at least approximately for example the model of miguel sidrauski 1967 implies that the real interest rate should equal the marginal product of capital which in the long run should equal the representative household s marginal rate of time preference if this rate of time preference is a constant then in particular it will be independent of the rate of inflation if it is positively related to the household s wealth or utility then inflation can reduce the marginal product of capital somewhat through what are commonly called mundell tobin effects that is higher inflation can reduce the demand for real balances which reduces real wealth which lowers the rate of time preference and leads to further capital accumulation 2 but this real balance effect on saving is commonly recognized to be too small to make department of economics social science centre university of western ontario london canada n6a 5c2 we are grateful to charles adams norman cameron john chilton jacob frenkel david laidler ben mccallum baldev raj brad reid jack weldon john whalley ron winrck and two anonymous referees for helpful discussions and comments on earlier drafts all errors are attributable to transaction costs robert lucas 1980 finds empirical support for the hypothesis which he calls one of the central implications of the quantity theory of money it has also been adopted by a wide range of more eclectic economists as evidenced by its endorsement in two of the most popular macroeconomics textbooks rudiger dornbusch and stanley fischer 1981 pp 454 58 robert j gordon 1978 pp 289 91 2these implications of variable time preference can be drawn almost immediately from the work of hirofumi uzawa 1968 a graphical analysis is presented by david laidler 1969b who focuses on the logically equivalent question of the effects of paying interest on money

a quantitative exploration of the role of short term domestic debt in balance of payments crises abstract the quantitative implications of a model of balance of payments crises are explored the model analyzes government sterilization of capital outflows through low interest rates on domestic debt this prevents a collapse in money demand but instead leads to a collapse in bond demand and therefore an increase in central bank domestic credit the theory s implications are consistent with the mexican experience of 1994 but much less so with indonesia in 1997 and brazil in 1998

a nominal theory of the nominal rate of interest and the price level this paper develops a simple theory of nominal income and interest determination under the assumption that the only relevant distinction between money and bonds lies in their holding periods individuals take full account of the government budget constraint and do not concern themselves with discounting future tax liabilities associated with the issue of government bonds according to this theory the price of bonds is analogous to the price level and the nominal rate of interest is determined by the bond money ratio and bears no close relationship to the rate of expansion of the price level

money bonds and foreign exchange in the theory of finance capital markets provide securities which allow the ownership of productive assets to be allocated among investors according to their willingness to bear risk in exchange for return and independently of their tastes for the productive services provided by the assets this paper uses the theory of finance to study the role of money as a productive asset and the transformation of money into a portfolio asset true to its purpose the capital market provides securities nominal bonds that allow an allocation of the current services of the money supply according to its current productivity and without regard for its future purchasing power risk and an allocation of the future purchasing power risk of the money supply according to the willingness of investors to bear this risk in exchange for return and without regard for investor needs for the future transactions services of money in open

a dynamic asymptotically ideal model of money demand abstract we estimate a dynamic asymptotically ideal model of a system of money demand equations this specification allows incomplete portfolio adjustment we base our policy conclusions on morishima elasticities because as blackorby and russell 1989 show the allen uzawa elasticities can give misleading results we find that cash assets savings deposits and small time deposits are all substitutes for each other these results imply that monetary authorities should target a relatively broad monetary aggregate that includes these assets if policy is to have predictable effects on the economy

a comparison of linear forecasting models and neural networks an application to euro inflation and euro divisia linear models reach their limitations in applications with nonlinearities in the data in this paper new empirical evidence is provided on the relative euro inflation forecasting performance of linear and non linear models the well established and widely used univariate arima and multivariate var models are used as linear forecasting models whereas neural networks nn are used as non linear forecasting models it is endeavoured to keep the level of subjectivity in the nn building process to a minimum in an attempt to exploit the full potentials of the nn it is also investigated whether the historically poor performance of the theoretically superior measure of the monetary services flow divisia relative to the traditional simple sum measure could be attributed to a certain extent to the evaluation of these indices within a linear framework results obtained suggest that non linear models provide better within sample and out of sample forecasts and linear models are simply a subset of them the divisia index also outperforms the simple sum index when evaluated in a non linear framework 2005 taylor francis group ltd

frontier production functions and technical efficiency measures the concept of technical efficiency is central to measuring the firm performance the measurement of technical efficiency has proved difficult and complex and the literature provides a range of methodologies this paper reviews the various methodologies for measuring technical efficiency and offers a comparison between established methods of measurements the discussion is literary with less mathematical jargons and equations the objective of this paper is not to be exhaustive but to be up to date and to provide a significant discussion on some of the core methods of measuring technical efficiency

the fisher hypothesis a critique of recent results and some new evidence the fisher hypothesis 5 that nominal interest rates should respond point for point to changes in the expected inflation rate while theoretically appealing has had limited success in explaining actual interest rate movements most empirical work has shown that net after tax nominal interest rates are not as sensitive to changes in expected inflation as the hypothesis suggests they should be more troublesome still are the results of two recent studies carmichael and stebbing 3 4 hereafter cs and amsler 1 turn the fisher hypothesis on its head by demonstrating that net nominal yields on financial assets do not respond at all to changes in the expected inflation rate rather the net real yield on these assets falls point for point with increases in the expected inflation rate

a semi nonparametric approach to the demand for uk monetary assets we estimate an asymptotically ideal model of the demand for uk personal sector monetary assets we use data that are consistent with utility maximizing behaviour and find that uk monetary assets are generally substitutes in use the estimated elasticities of substitution during the 1980s and the early 1990s indicate that a relatively broad monetary aggregate should be used in economic studies the results also suggest that any policy based on interest or user cost elasticities of substitution between financial assets should be based on the morishima elasticities as the allen uzawa calculation can give misleading results

providing support for decisions based on time series information under conditions of asymmetric loss abstract in an experiment decision makers used time series information on the past demand for products to decide on production levels to meet the next period s demand either shortages cost more per unit than surpluses or the asymmetry of losses was in the opposite direction the decision makers were either i unsupported ii provided with statistical point forecasts of the next period s demand or iii asked to estimate probability distributions of next period s demand using the fractile method the decisions were inferred from these distributions decomposition providing statistical forecasts led to decisions incurring significantly lower expected costs than those achieved by the unsupported decision makers however the decomposition procedure did not significantly reduce expected costs because contrary to earlier evidence the fractile method generally led to distributions that were too wide and flat decision makers in both treatments i and ii also performed significantly better when shortages were more costly than surpluses

monetary aggregation and the neutrality of money zisimos koustas this article tests the long run neutrality of money proposition using quarterly u s data over the period from 1960 1 to 1996 2 and the methodology suggested by king and watson 1997 paying particular attention to the integration and cointegration properties of the variables comparisons are made among simple sum divisia and currency equivalent ce monetary aggregates using the anderson et al 1997a 1997b series of divisia and ce monetary aggregates jel e40 e50 c32 i introduction the aim of this article is to investigate a long run question about the role of money in monetary policy whether changes in the conduct of monetary policy influence the growth rate of output as lucas 1996 p 661 puts it so much thought has been devoted to this question and so much evidence is available that one might reasonably assume that it had been solved long ago but this is not the case in fact recently fisher and seater 1993 and king and watson 1997 contribute to the literature on testing quantity theoretic propositions by developing tests using recent advances in the theory of nonstationary regressors and show that meaningful long run neutrality and superneutrality tests can only be constructed if both nominal and real variables satisfy certain nonstationarity conditions and that much of the older literature violates these requirements in this paper in the spirit of serletis and koustas 1998 and koustas and serletis 1999 we test the long run neutrality and superneutrality of money using the king and watson 1997 methodology paying particular attention to the gains that can be achieved by rigorous use of microeconomic and aggregation theoretic foundations in the construction of money measures this is accomplished by making comparisons among simple sum divisia and currency equivalent ce monetary aggregates using the anderson et al 1997a 1997b data see anderson et al 1997a 1997b for more details we also pay attention to the integration and cointegration properties of the variables because meaningful neutrality and superneutrality tests critically depend on such properties the organization of the article is as follows the next section briefly discusses the problem of the definition aggregation of money in section iii we investigate the univariate time series properties of the variables as these properties are relevant for some problems of potential importance in the practical conduct of monetary policy as well as for estimation and hypothesis testing in section iv we test the long run neutrality and superneutrality of money propositions using the king and watson 1997 structural bivariate autoregressive methodology paying particular attention to the integration and cointegration properties of the data the final section concludes ii the many kinds of money the monetary aggregates currently in use by the federal reserve are simple sum indices in which all monetary components are assigned a constant and equal unitary weight this index is m in 1 m sigma sup n sub i 1 x sub i where x sub i is one of the n monetary components of the monetary aggregate m this summation index implies that all monetary components contribute equally to the money total and it views all components as dollar for dollar perfect substitutes there is no question that such an index represents an index of the stock of nominal monetary wealth but cannot in general represent a valid structural economic variable for the services of the quantity of money over the years there has been a steady stream of attempts at properly weighting monetary components within a simple sum aggregate with no theory however any weighting scheme is questionable barnett 1980 derived the theoretical linkage between monetary theory and aggregation and index number theory he applied economic aggregation and index number theory and constructed monetary aggregates based on diewert s 1976 class of superlative quantity index numbers

real interest rates anticipated inflation and unanticipated money a multi country study a bstractin this paper we examine real interest rate behavior in canada west germany the united states and the united kingdom using a model that yields a semi reduced form equation linking the real interest rate to monetary growth shocks anticipated inflation and expected inflation variance the estimator used in our analysis accommodates regressors from other regressions ensuring that accurate inferences are obtained in all countries we find that increases in anticipated inflation initially dampen real interest rates in addition a significant and negative relationship between unanticipated money shocks and real interest across all countries is discovered inflation variance typically exhibits little explanatory power

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

monetary variability united states and japan note many economists have criticized the federal reserve because of the high variability of monetary growth in the united states since the change in operating procedures on october 6 1979 chairman paul volcker has responded to this criticism in congressional testimony november 19 1980 and in a letter to senator garn february 18 1982 by asserting that international comparisons all appear to demonstrate the same point u s monetary aggregates rank at or near the top of the league in terms of low variability and this is true even allowing for the technical difficulties involved in making such international comparisons

semi non parametric estimates of substitution for canadian monetary assets we estimate the dynamic fourier expenditure system to obtain consistent estimates of short run and long run morishima elasticities of substitution for canadian liquid assets we argue that the variability of the estimated elasticities and evidence of less than perfect substitution between monetary assets interferes with the successful use of simple sum aggre gates and traditional log linear money demand functions

a monetary explanation of the equity premium term premium and risk free rate puzzles this paper develops and estimates a monetary model that offers an explanation of some puzzling features of observed returns on equities and default free bonds the key feature of the model is that some assets other than money play a special role in facilitating transactions which affects the rate of return that they offer the model is capable of producing a low risk free rate a high equity premium and an average positive relationship between maturity and term premium for default free bonds the model s implications for the joint distribution of asset returns velocity inflation money growth and consumption growth are also compared to the behavior of these variables in the u s economy

sources of variation in international real interest rates this paper analyses the effects of inflation on ex post real interest rates in an international framework a dynamic factor model is estimated in which real interest rates are influenced by real interest and inflation factors that are common to all the countries and by country specific factors we find that the source of domestic inflation is an important determinant of the effect of inflation on real interest rates a common inflation factor has a negative effect on ex post real interest rates lending support to a form of the mundell tobin effect in international real interest rates and that a country specific inflation factor tends to have a positive effect

australasian money demand stability application of structural break tests estimates of the demand for money provide important foundations for monetary policy setting but if the estimation technique does not explicitly account for structural changes then such estimates will be biased this paper presents an investigation into the level and stability of money demand m1 for australia and new zealand over the 1960 2009 period and demonstrates that both countries experienced regime shifts australia also experienced an intercept shift application of four time series methods provide consistent results with 1984 and 1998 break dates cusum and cusumsq stability tests reveal that m1 demand functions were unstable over the 1984 to 1998 period for both countries although tests for stability are not rejected thereafter

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

the effects of expected inflation on real returns in the argentine indexed bond market abstract a relatively unrestricted market in goverment indexed bonds operated in the high inflation argentine economy from 1975 through 1982 the indexed bond yields from this period provide an interesting opportunity to examine the relation between real interest rates and expected inflation the test results support the hypothesis that expected inflation is a significant source of variation in real interest rates depressing the real yields on indexed bonds

potential cost synergies from banks acquiring real estate brokerage services abstract national banks and financial holding companies fhc solicited permission from the federal reserve board and the treasury department to add real estate brokerage and management services to list of permissible business activities under the 1999 gramm leach bliley act glb to date permission has been denied due to the community choice in real estate act hr 111 and s 98 this study offers a method of combining the financial data of two independent industries additionally this study identifies the scale returns and cost complementarities that may occur if banks offered real estate brokerage services under a single organization considerable evidence suggests that joining bank and real estate activities under a single organization would continue to generate increasing returns to scale for banks even when large levels of real estate brokerage services are offered by the joint institution in addition the results indicate evidence that bank acquisitions of real estate brokerages do create some cost saving synergies from cost complementarities between product lines finally complementarities exist between traditional bank services and real estate services most at low levels of real estate outputs

financial innovation new assets and the behavior of money demand abstract two fundamental changes in us banking regulations have affected the behavior of money demand m1 the first authorized checkable deposit accounts paying explicit interest rates the second allowed these rates to be market determined the theoretical literature does not directly address the impact of these events suggesting that they are primarily an empirical issue however the empirical literature has yet to agree on the impact of financial innovation on money demand for example several studies report an increase in the elasticity of money demand several others report a decline this paper uses a lancaster type choice model to analyze formally the expected impact of these two changes on the demand for money the model derives specific conditions under which i the demand for money increases as new assets are introduced and ii the impact of either the introduction of new assets or the elimination of interest rate restrictions on the elasticity of money demand

measuring substitution in monetary asset demand systems the allen elasticity of substitution aes is widely used to study monetary asset substitution and structural demand stability blackorby and russell showed that the aes is uninformative and that the morishima elasticity of substitution mes is the appropriate measure a point overlooked in the monetary literature use of improper measures can lead to incorrect inferences this article considers five alternative measures of substitution the aes the mes the hicksian and marshallian elasticities of demand and mundlak s unencountered but appealing constant cost elasticity of substitution selection of the substitution measure appropriate to respective research questions is addressed

evaluating changes in the distribution of capital wealth i introduction over the last several years increasing concern has been expressed about wealth and income inequality 1 while most of the concern centers on the deteriorating economic condition of the poor some of it is directed against the very wealthy 2 proposals are being put forward from direct taxation of wealth to taxation of inheritances whose purpose is to foster greater equality in the distribution of wealth and particularly in the distribution of capital wealth 3 serious study of the potential economic consequences of greater capital wealth equality has been limited many economic models utilized to examine policy issues either ignore capital wealth distribution or take it as a given as a result opinions on the matter tend to be influenced largely by ideological preconceptions some tend to view very large capital fortunes mainly as desirable incentives to vigorous entrepreneurial effort and or high saving while others tend to view them mainly as a dysfunctional outgrowth of the institution of inheritance together with a high degree of randomness in the determination of capital asset values it is widely accepted that there are at least two principal justifications for capital property income as a return to the active process of entrepreneurship and or investment analysis and as a return to the passive process of saving 4 in a strict logical sense these justifications for capital property income even if legitimate do not necessarily justify a high level of inequality in capital wealth if a small number of very wealthy capitalists were replaced by a much larger number of less wealthy capitalists the amount of entrepreneurship investment analysis and saving provided to the economy would not necessarily be reduced the purpose of this research is to throw some objective light on the potential economic consequences of greater capital wealth equality by specifying implementing and computing a small scale general equilibrium model in which the distribution of capital wealth is a key parameter the model is designed to address directly various concepts and issues which at the present time lie mostly within the province of ideological preconception rather than scientific analysis the model includes saving as a primary factor of production provided by the household but many other general equilibrium models include saving and hence are able to some extent at least to evaluate the saving justification for capital property income and by extension for capital wealth inequality the innovative feature of the present model is its inclusion as a primary factor of production provided by the household of capital management effort capital management effort is defined as any and all active behavior by the household designed to increase the rate of return on its capital wealth such behavior might include corporate supervision such as provided by a member of a board of directors corporate supervision is distinguished from corporate management provided by salaried executives investment analysis such as provided by a private investor or entrepreneurship such as provided by the founder owner of a new business firm households allocate their available time resources to labor capital management effort and leisure standard household theory encompasses only labor and saving as primary factors adding the capital management effort concept enables a direct assessment of the role of such critical factors as entrepreneurship in the economy and thereby enables a more thorough and reliable evaluation of the potential economic consequences of increasing equality in capital wealth distribution 5 on the whole the results described below support the conclusion that greater equality in capital wealth would be economically beneficial the results are strong in the sense that every performance indicator examined in the research aggregate income consumption equality social welfare in the sum of utilities sense and aggregate saving is improved by greater capital wealth equality

further evidence on the fisher effect the strong form of the fisher hypothesis states that the nominal rate of interest fully adjusts to anticipated inflation weaker forms of the hypothesis identify circumstances where the nominal interest rate either overadjusts or underadjusts previous tests of the hypothesis using australian data and error correction techniques have found conflicting results vector autoregressive innovations are used to estimate the fisher equation and in general the strong form of the hypothesis is rejected in favour of underadjustment however the strong form of the hypothesis cannot be rejected in the period following deregulation of the financial system

banks and macroeconomic disturbances under predetermined exchange rates abstract as the recent mexican crisis vividly illustrates latin american countries often go through boom bust cycles caused by both domestic policies and external shocks such cycles are typically magnified by weak banking systems which intermediate large capital inflows this paper develops a simple optimizing model to analyze how the banking sector affects the propagation of shocks in particular we show how the world business cycle and shocks to the banking system affect output and employment through fluctuations in bank credit we also analyze the countercyclical use of reserve requirements econometric evidence for chile and mexico supports the main predictions of the model

the own price of money and a new channel of monetary transmission traditionally the effects of monetary policy actions on output are thought to be transmitted via monetary or credit channels real business cycle theory by contrast highlights the role of real price changes as a source of revisions in spending and production decisions motivated by the desire to focus on the effects of price changes in the monetary transmission mechanism this paper incorporates a direct measure of the real own price of money into an estimated vector autoregression and a calibrated real business cycle model consistent with the rbc view of the monetary transmission mechanism both approaches reveal that movements in the own price of money are strongly related to movements in output

the new wave of private capital inflows push or pull abstract this paper studies the determinants and sustainability of the widespread private capital inflows to middle income countries after 1989 the key question is whether these flows are mostly pulled by attractive domestic conditions or pushed by unfavorable conditions in developed countries an analytical model focusing on country risk is developed and used empirically it is argued that the observed improvement in country creditworthiness is mostly due to the decline in international interest rates and that therefore its importance as a proximate cause does not support the pull interpretation all things considered in most countries the key answer that emerges is push

money is what money does monetary aggregation and the equation of exchange this paper develops a method for distilling the transactions role of the array of monetary assets available to the public into a single aggregate measure of effective transactions balances the result is a monetary quantity index number designated mq which corresponds closely with the monetary aggregate contemplated in the equation of exchange mv pq in general mq and the conventional aggregate m 1 exhibit strikingly similar behavior however during episodes when the behavior of m1 is abnormal relative to income and interest rates mq behaves differently from m 1 during these periods anomalies in the behavior of mq are not detectable

microfoundations and the demand for money the reader should note that i write this piece in a style that aims to be accessible to that much neglected representative agent the woman on the eurostar train hence unlike the man on the clapham omnibus i assume my intrepid traveller has reasonable knowledge of monetary economics and econometrics but not of the details of the demand for money space constraints force me to indulge in a certain amount of poetic licence but i hope this results in poetic justice there have been many wars fought on this particular battlefield some with almost religious zeal on the theoretical side of the debate we sometimes have the equivalent of religious fundamentalists be they muslims jews christians etc who would dismiss almost any evidence unless it were associated with a strong microtheoretic basis as laid down in the koran talmud or bible the empirical side encompasses agnostics atheists as well as born again econometricians pure theorists inhabit the sunlit uplands while applied economists and policymakers flounder in the muddy plain below occasionally gaining solace from their copy of zen and the art of motorcycle maintenance in general in economics we do not have the luxury of controlled experiments as is the case in the natural sciences what distinguishes good microfoundations from bad and how to weight priors and statistical evidence is subject to much dispute leamer i983 hendry et al i990 as in religion sometimes there is the occasional miracle proclaimed after a suitable interval a new saint may be declared and disciples flock to the new shrine later doubts may arise as to whether a miracle really did occur human behaviour is difficult to explain let alone predict so the search for the equivalent of the holy grail ark of the covenant etc is bound to be arduous in scholarly journals we generally read of the success of the demand for money like diplomats who are sent abroad to lie for the good of their country publication may require applied economists to be somewhat economical with the actualite lovell i983 leamer i983 in this article i want to be as honest as possible about our success and failures in this area the prior information an armchair economist would consider when thinking about the demand for money over the past 40 years in western industrialised countries which have experienced moderate inflation might

international evidence on the long run impact of inflation in this paper i use a structural vector autoregression framework to analyze the effects of a permanent change in inflation on the long run real interest rate and real output level in 14 industrialized countries long run monetary superneutrality is rejected for all 14 countries using annual data the results indicate that a permanent increase in inflation lowers the long run real interest rate in each country a permanent increase in inflation also increases the long run real output level in a number of countries long run monetary superneutrality is also rejected for four out of the five countries examined using quarterly data under long run monetary superneutrality lrsn a per

time is money costing the impact of duration misperception in market prices abstract we explore whether and to what extent traders in a real world financial market where participants judgements are reportedly well calibrated are subject to duration misperception to achieve this we examine duration misperception in the horserace betting market we develop a two stage algorithm to predict horses winning probabilities that account for a duration related factor that is known to affect horses winning prospects the algorithm adapts survival analysis and combines it with the conditional logit model using a dataset of 4736 horseraces and the lifetime career statistics of the 53 295 horses running in these races we demonstrate that prices fail to discount fully information related to duration since a horse s last win we show that this failure is extremely costly since a betting strategy based on the predictions arising from the model shows substantial profits 932 5 percent and 16 27 percent with and without reinvestment of winnings respectively we discuss the important implications of duration neglect in the wider economy

on the denomination of government debt a critique of the portfolio balance approach abstract we show that some classes of sterilized interventions have no effect on equilibrium prices and quantities the proof does not require complete markets ricardian equivalence monetary neutrality or the law of one price moreover regressions of exchange rates or interest differentials on variables measuring debt s currency composition contain no information about the affectiveness of such interventions other interventions require changes in monetary and fiscal policy their effects depend generally on the influence of these changes on the economy and not on the intervention alone in short sterilized intervention is not as the portfolio balance approach indicates an extra policy instrument

payment transactions instruments and systems a survey the payments literature ranges from theoretical general equilibrium models to practical payment issues related to the day to day operation of various national networks for the transfer of money it is an area where economic theory and institutional structure are often closely intertwined and it is currently undergoing significant change shifting from costly paper based systems to technologically advanced electronic payments the extant literature is surveyed here with the aim of integrating the various strands of payment research which have been largely pursued separately in addition we present newly available data to illustrate and investigate a number of underdeveloped areas in this literature 1998 elsevier science b v all rights reserved

estimating the liquidity of m2 components in the post didmca era i introduction the depository institutions deregulation and monetary control act of 1980 didmca together with the garn st germain act and related federal reserve actions resulted in a thorough redefinition of the money stock measures as discussed in anderson and kavajecz 1994 and related writings the current components of m1 and m2 recognize the significant changes among existing assets that occurred throughout the 1970s examples include the rapid growth of money market mutual funds mmmfs and the breakdown of distinctions between deposits of commercial banks and thrift institutions the measures of money include assets introduced by legislation such as now accounts and money market deposit accounts mmdas the didmca also deregulated interest rates on bank deposits with january 1986 completing the phase out of regulation q this paper examines the liquidity of the assets within the restructured definitions of m1 and m2 we offer empirical evidence regarding the cost of decreasing these asset holdings as well as for other bank deposits such as individual retirement accounts iras the results can be used to assess how easily they can be converted into a medium of exchange section ii features the model formulation based upon a representative household s intertemporal optimization problem with liquidity costs our study provides estimates of both relative and absolute liquidity as lippman and mccall 1986 discuss liquidity represents a fundamental characteristic of assets yet remains elusive in its measurement to this extent research seeking to measure or estimate liquidity is sparse lippman and mccall s 1986 criterion consists of the optimal expected amount of time to transform an asset into money hooker and kohn 1994 define liquidity as the difference between the asset price at its optimal sale relative to its immediate sale adjustment cost serves as our measure for liquidity this criterion conforms to commonly used definitions found in economics textbooks particularly those that emphasize asset withdrawal for transactions mishkin 1995 55 for example defines liquidity as the relative ease and speed with which an asset can be converted into a medium of exchange the adjustment cost approach measures withdrawal costs in dollar units it regards liquidity as an inherent characteristic of the asset and captures the total cost involved with changing asset holdings the implicit inclusion of time costs within the formulation is consistent with lippman and mccall 1986 asymmetry in adjustment cost arises because liquidity explicitly involves the cost of reducing asset holdings while economic units incur costs due to increasing financial assets larger costs result from withdrawal we use a minor modification of pfann and verspagen s 1989 asymmetric adjustment cost function proposed by dutkowsky 1995 the function offers several attractive properties for estimating liquidity cost it allows for asymmetry in the direction of either increases or decreases within portfolio reallocation further the commonly used linear quadratic function is nested within this equation enabling straightforward testing for greater withdrawal cost the asymmetric adjustment cost specification has been utilized previously by pfann and palm 1993 within labor demand section iii reports empirical findings we estimate the structural parameters using generalized method of moments gmm and monthly data for the december 1983 march 1993 period the results reveal significant evidence of asymmetry in the direction of decreasing asset holdings for all components except demand deposits this finding supports the existence of greater cost for withdrawing as opposed to increasing holdings among interest bearing accounts further the evidence points to a definite ordering of liquidity among several assets within this group savings deposits rank as the most liquid followed by small time deposits mmmfs and individual retirement accounts

transactions technology and the time consistency of optimal policy abstract in a perfect foresight continuous time model of the macro economy turnovsky and brock 1980 have demonstrated that the government s choice of an optimal policy will be time inconsistent only if it is bound by a k rule regarding the growth of nominal monetary balances this result is shown to be invalid when bonds bear a liquidity yield under such circumstances it is shown that all optimal policies are time inconsistent the conclusion is that the liquidity properties of the government s financing instruments play an important role in determining the consistency properties of its optimal policies

relative prices in the uk personal sector money demand function nonparametric demand analysis is used in order to establish admissible monetary aggregates and also to establish a potential role for relative prices in the money demand function a conventional money demand specification is then contrasted with a money demand function which contains the relative prices of durables nondurables and services as additional regressors evidence from long run cointegration analysis short run error correction models and nonnested testing all confirm a role for relative prices in the u k personal sector s money demand function copyright 1996 by royal economic society

linear and quadratic spline models for consumer demand functions this paper combines flexible functional form techniques which provide local approximations to indirect preferenc es with respect to prices and incomes with spline techniques that provide global approximations with respect to real income the main technical problem is that real income or utility is an unobserved variable starting with the normalized quadratic expenditure functio n linear and quadratic spline models are introduced theoretically and are empirically estimated using japanese consumer data for four goods fo r the years 1970 87 the semi nonparametric literature initiated by a r gallant is reviewed and a limited semi nonparametric property is claimed to hold for the spline models presented in the paper

a divisia system approach to modelling monetary aggregates abstract a complete system of divisia partial adjustment asset equations based on the augmented price expectations baumol tobin inventory and transactions postulates is used to study the dynamic behaviour of monetary aggregates and their components in australia during 1969 iii to 1983 iv the system provides a new and useful approach to modelling demand for money functions for effective monetary policy controls and targetting

measuring money growth when financial markets are changing abstract this article considers constructing monetary aggregates in the presence of financial market innovations and changes in the relationship between individual assets and output we propose two procedures for constructing a monetary aggregate with the objective of providing a reliable monetary leading indicator of nominal gdp in the first subaggregates discretely switch in and out in the second the aggregate s growth is a time varying weighted average of the growth of the subaggregates where the weights follow a multivariate random walk these procedures are used to examine augmenting m2 with stock and or bond mutual funds the alternative aggregates are broadly similar to m2 but during 1992 1993 they outperform m2

nonparametric tests of utility maximization and weak separability for consumption leisure and money some of the most fundamental assumptions of economics are utility maximization and weak separability of the arguments in the represen tative consumer s utility function this paper contains results from nonparametric tests of these assumptions about consumer behavior the authors find that quarterly per capita data on consumption goods le isure and monetary assets are consistent with utility maximization further consumption goods and leisure meet necessary and sufficient conditions for weak separability additionally one grouping of relat ively liquid monetary assets meets the necessary conditions for weak separability they also test and find no evidence of homothetic prefe rences copyright 1987 by mit press

the application of neural networks to the divisia index debate evidence from three countries if monetary policy is to be effective in controlling the macroeconomy accurate measurement of the money supply is essential the conventional way of measuring the level of the money supply is to simply sum the constituent liquid liabilities of banks however a more sophisticated weighted monetary index has been proposed to take account of the varying degrees of liquidity of the short term instruments included in money inferences about the effects of money on economic activity may depend importantly on the choice of monetary index because simple sum aggregates cannot internalize pure substitution effects this hypothesis is investigated in the current paper a divisia index measure of money is constructed for the usa uk and italian economies and its inflation forecasting potential is compared with that of its simple sum counterpart in each of the three countries the powerful artificial intelligence technique of neural networks is used to allow a completely flexible mapping of the variables and a grea

input demands and inefficiency in u s agriculture markov chain monte carlo mcmc methods are used to estimate a seemingly unrelated regression sur system of input demand functions for u s agriculture our demand functions have flexible forms and allow for nonrandom technical inefficiency concavity constraints are imposed at individual data points and the distributions of measures of relative technical efficiency are constrained to the unit interval results are evaluated in terms of characteristics of the posterior distributions of parameters measures of relative technical efficiency and other nonlinear functions of the parameters

on the markov switching welfare cost of inflation abstract this paper uses the markov switching approach to account for instabilities in the long run money demand function and compute the welfare cost of inflation in the united states in doing so it circumvents the problem of data mining of some earlier seminal contributions on these issues allowing for complicated nonlinear dynamics and sudden changes in the parameters of the money demand function moreover it extends the sample period and investigates the robustness of results to alternative money demand specifications monetary aggregation procedures and assumptions regarding dynamics aspects of the money demand specification

estimating technical efficiency of australian dairy farms using alternative frontier methodologies technical efficiency is estimated and examined for a cross section of australian dairy farms using various frontier methodologies bayesian and classical stochastic frontiers and data envelopment analysis the results indicate technical inefficiency is present in the sample data also identified are statistical differences between the point estimates of technical efficiency generated by the various methodologies however the rank of farm level technical efficiency is statistically invariant to the estimation technique employed finally when confidence credible intervals of technical efficiency are compared significant overlap is found for many of the farms intervals for all frontier methods employed the results indicate that the choice of estimation methodology may matter but the explanatory power of all frontier methods is significantly weaker when interval estimate of technical efficiency is examined

the adjustment of the real interest rate to inflation this paper reports tests of carmichael and stebbing s 1983 inverted fisher hypothesis that it is the real rather than the nominal interest rate which adjusts to changes in the expected inflation rate unlike the earlier analysis the results presented here are based on a properly specified estimating equation derived from a short run open economy macro model the results support the inverted fisher hypothesis in the short run but indicate that there is some overshooting of the real interest rate so that after four quarters about 75 of the effect of an expected inflation change is reflected in real rates while the remainder leads to an increase in the nominal rate

a tractable model of indirect asset liquidity abstract assets have indirect liquidity if they cannot be used as media of exchange but can be traded to obtain a medium of exchange money and thereby inherit monetary properties this essay describes a simple dynamic model of indirect asset liquidity provides closed form solutions for real and nominal assets and discusses properties of the solutions some of these are standard assets and money are imperfect substitutes asset demand curves slope down and money is not always neutral other properties are more surprising prices are flexible but appear sticky and an increase in the supply of indirectly liquid assets can decrease welfare because of its simplicity the model can be useful as a building block inside a larger model and for teaching concepts from monetary theory

consumer theory and the demand for money the following sections are included introductionthe definition of moneythe microeconomic theory of a monetary economythe aggregation theoretic approach to money demandindex number theorythe links between aggregation theory index number theory and monetary theoryunderstanding the new divisia aggregatesthe optimal level of monetary subaggregationeconometric considerationsapproximating the monetary services subutility functionan exampleempirical dimensionsempirical comparisons of index numbersempirical results for the demand system approachextensionsconclusions this abstract was borrowed from another version of this item

bayesian efficiency analysis with a flexible form the aim cost function in this article we describe the use of gibbs sampling methods for drawing posterior inferences in a cost frontier model with an asymptotically ideal price aggregator nonconstant returns to scale and composed error an empirical example illustrates the sensitivity of efficiency measures to assumptions made about the functional form of the frontier we also examine the consequences of imposing regularity through parametric restrictions alone

economic efficiency and frontier techniques abstract most of the literature related to the measurement of economic efficiency has based its analysis either on parametric or on non parametric frontier methods the choice of estimation method has been an issue of debate with some researchers preferring the parametric and others the non parametric approach the aim of this paper is to provide a critical and detailed review of both core frontier methods in our opinion no approach is strictly preferable to any other moreover a careful consideration of their main advantages and disadvantages of the data set utilized and of the intrinsic characteristics of the framework under analysis will help us in the correct implementation of these techniques recent developments in frontier techniques and economic efficiency measurement such as bayesian techniques bootstrapping duality theory and the analysis of sampling asymptotic properties are also considered in this paper

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 non neutrality of inflation for international capital movements this paper studies the question of how unilateral changes in the rate of inflation affect the international allocation of capital presenting a model that incorporates a transaction motive for money holding and capital income taxation with historical cost accounting it counters the view that inflation will be neutral in a world of perfect foresight and costless arbitrage under mild conditions domestic inflation will unambiguously induce a capital export the paper includes a discussion of the fisher effect the empirical observation of a less than one to one translation of inflation into nominal interest rates is shown to be compatible with the model and in fact the capital export turns out to be stronger the lower the degree of translation

two illustrations of the quantity theory of money of two central implications of the quantity theory of money that a given change in the rate of change in the quantity of money induces i an equal change in the rate of price inflation and ii an equal change in nominal rates of interest the illustrations were obtained by comparing moving averages of the three variables in question using quarterly u s time series for the period 1953 77 readers may find the results of interest as additional confirmation of the quantity theory as an example of one way in which the quantity theoretic relationships can be uncovered via atheoretical methods from time series which are subject to a variety of other forces or as a measure of the extent to which the inflation and interest rate experience of the postwar period can be understood in terms of purely classical monetary forces the theoretical background of the study is reviewed very briefly as it is familiar material in the next section the data processing methods are described and rationalized in section ii the illustrations

evidence of the fisher effect from u k indexed bonds newly available data from the u k market for indexed securities are used to test the fisher hypothesis for monthly observations of interest rates at 14 maturities the hypothesis that the after tax nominal interest rate is a constant plus anticipated inflation proves to be a reasonable approximation of reality for longer maturities the coefficients on the expected rate of inflation are approximately equal to one the mundell tobin effect is in evidence for shorter maturities the inverted fisher effect is in evidence for shorter maturities the inverted fisher effect is decisively rejected the evidence suggests that past difficulties encountered in trying to prove the fisher effect have been due to the lack of a direct measure of inflation expectations and real interest rates copyright 1992 by mit press