velocity and the variability of money growth some international evidence abstract using data from four countries the paper tests friedman s hypothesis that the volatility of money growth causes velocity to change despite a wide variety of patterns in the movements of velocity in these countries support is evident for the hypothesis

wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

income velocity and the variability of money growth evidence from less developed countries this paper examines whether the variability of money growth caused changes in income velocity of money in 30 less developed countries time series data show year to year variations in income velocity of money in these countries for the 1961 1990 period empirical results based on causality but complemented by variance decomposition tests show that money growth is the most important determinant in explaining the variability in income velocity in at least 20 of the 30 developing countries examined in this study in addition the causality results show that inflation rate granger causes income velocity of money in 21 countries but the variance decomposition results show inflation rate to be relatively more important in explaining the variability of velocity in eight countries similarly while real income granger causes velocity of money in 18 countries the results of the variance decomposition tests show real income to be relatively more important as a determinant of income velocity in two countries over

lag length selection and tests of granger causality between money and income one of the most widely accepred relationships in macroeconomics is the positive relationship between the rate of growth of the money supply and the rate of growth of income a diversity of opinion arises however with the attempt to identify a causal relationship between these variables while friedman and schwartz 1963 initiated the empirical investigation of money income causality sims 1972 made the most significant contribution to this literature with a practical application of the criterion developed by granger 1969 for identifying a causal relationship since the appearance of sims s approach and an alternative one advanced by sargent 1976 many researchers have applied these techniques to the investigation of the causal relationship between money and income l with two exceptions hsiao 1981 and mcmillin and fackler 1984 these researchers have arbitrarily chosen the lengths of their distributed lags the purpose of this paper is to test for granger causality between money and income this paper differs from previous work in that considerably more attention is focused on the effect of the lag specification on the test results in particular we investigate the extent to which rules of thumb arbitrary lag specifications and

the nature of precautionary wealth abstract this paper uses the panel study of income dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty however the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cucle model in which consumers are patient enough to begin saving for retirement early in life wealth is estimated to be far less sensitive to uncertainty than implied by that model instead our results suggest that over most of their working life time consumers behave in accordance with the buffer stock models of saving described in carroll 1992 1997 or deaton 1991 in which consumers hold wealth principally to insulate consumption against near term fluctuations in income

precautionary savings and the self employed this work focuses on the impact of uncertainty on savings under bequest form specifically we estimate whether and to what extent income variability does have an effect on post mortem savings we approximate the post mortem savings with the closest dedicated savings which is savings in term insurance a lump sum inherited at the death of the subscriber furthermore we test whether the intensity of the income variance or the riskiness of the job type such as self employment matters more in the choice our results show that self employment status is one of the most relevant variables affecting term insurance ownership

friedman s velocity hypothesis abstract the purpose of this note is to report tests of friedman s velocity hypothesis that money growth volatility affects velocity in the case of france the evidence provides some additional support for this hypothesis however the evidence is less clear out than the one found in studies of other industrial countries

monetary stability and interest free banking the case of iran previous research has suggested that islamic banking systems may be more stable than western systems however this contention has only been tested empirically for the case of tunisia a country with no significant history of islamic banking this paper replicates the study done on tunisia for the case of iran a country with some history of islamic banking the results are mixed with some evidence both for and against the hypothesis of greater stability for islamic banking it is suggested that a good deal more work must be done to prove claims about the relative stability of islamic banking

a theory of the consumption function with and without liquidity constraints fifteen years ago milton friedman s 1957 treatise a theory of the consumption function seemed badly dated dynamic optimization theory had not been employed much in economics when friedman wrote and utility theory was still comparatively primitive so his statement of the permanent income hypothesis never actually specified a formal mathematical model of behavior derived explicitly from utility maximization instead friedman relied at crucial points on intuition and verbal descriptions of behavior although these descriptions sounded plausible when other economists subsequently found multiperiod maximizing models that could be solved explicitly the implications of those models differed sharply from friedman s intuitive description of his model furthermore empirical tests in the 1970s and 1980s often rejected these rigorous versions of the permanent income hypothesis in favor of an alternative hypothesis that many households simply spent all of their current income today with the benefit of a further round of mathematical and computational advances friedman s 1957 original analysis looks more prescient than primitive it turns out that when there is meaningful uncertainty in future labor income the optimal behavior of moderately impatient consumers is much better described by friedman s original statement of the permanent income hypothesis than by the later explicit maximizing versions furthermore in a remarkable irony much of the empirical evidence that rejected the permanent income hypothesis as specified in tests of the 1970s and 1980s is actually consistent both with friedman s original description of the model and with the new version with serious uncertainty there are four key differences between the explicit maximizing models

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

life cycle individual thrift and the wealth of nations this paper provides a review of the theory of the determinants of individual and national thrift that has come to be known as the life cycle hypothesis lch of saving applications to some current policy issues are also discussed part i deals with the state of the art on the eve of the formulation of the lch some 30 years ago part ii sets forth the theoretical foundations of the model in its original formulation and later amendment calling attention to various implications distinctive to it and sometimes counter intuitive it also includes a review of a number of crucial empirical tests both at the individual and the aggregate level part iii reviews some applications of lch to current policy issues though only in sketchy fashion as space constraints prevent fuller discussion this abstract was borrowed from another version of this item

does the quality of institutions enhance savings the case of sub saharan africa over the last three decades there has been increasing disparity in savings across regions and income groupings globally in this paper we investigate whether the quality of institutions explains

implementation of lindahl allocations with nontotal nontransitive preferences abstract the purpose of this paper is to present a mechanism the nash allocations of which coincide with the lindahl allocations even when preferences are nontransitive or nontotal this extension to include nontotal nontransitive preferences is potentially very important since preferences of agents are nontransitive nontotal in many cases in particular in the case where the players are groups of individuals besides the mechanism presented here uses outcome functions that are individually feasible balanced not merely weakly balanced continuous differentiable around nash equilibria and furthermore almost everywhere differentiable moreover the mechanism has a message space of minimal dimension

how do politicians save buffer stock management of unemployment insurance finance abstract we fit an empirical structural model of forward looking government savings behavior to data from the u s state unemployment insurance ui programs 1976 2008 states increase benefits or lower taxes when unemployment trust fund balances are high consistent with a desired target level of savings this can be explained by the representative state program behaving like a carroll 1992 buffer stock consumer who trades off a desire to expend savings impatience against the fear of running out of funds risk aversion we calibrate the model to the data and find that statistics from model simulations match similar statistics produced from the data for reasonable levels of risk aversion and impatience

humps and bumps in lifetime consumption in this article we argue that the life cycle model that allows demographics to affect household preferences and relaxes the assumption of certainty equivalence can generate hump shaped consumption profiles over age that are very similar to those observed in household level data sources and in particular match the differences in shape across different education groups liquidity constraints or myopia are not required to explain the empirical features of observed life cycle patterns

economics and electronic commerce for economists who study markets whether wholesale or retail goods or services commodities or highly differentiated products these are extraordinary times the internet and related technologies have caused the costs of many kinds of market interactions to plummet as with any dramatic technological change the most obvious and earliest effects are incremental we find easier and less costly ways of doing the things we are already doing over time however the shifts are more drastic we discover that we can do entirely new things or completely restructure the way in which certain business activities are carried out such long term impacts of technological change are always hard to forecast but that task is especially difficult in the case of e commerce where markets are currently very far from equilibrium in the land rush to secure internet real estate to gain first mover market position and other advantages many firms are pursuing strategies that are properly interpreted as the payment of one time largely sunk entry costs in some cases the focus of these expenditures is on customer acquisition through pricing that is not likely to be sustainable while in others it is building infrastructure to achieve minimum efficient scale these expenditures fueled by inflows of venture capital may represent reasonable investments for a chance of a future stream of profits that might accrue to the

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

a direct test of the buffer stock model of saving recent models with liquidity constraints and impatience emphasize that consumers use savings to buffer income fluctuations when wealth is below an optimal target consumers try to increase their buffer stock of wealth by saving more when it is above target they increase consumption this important implication of the buffer stock model of saving has not been subject to direct empirical testing we derive from the model an appropriate theoretical restriction and test it using data on working age individuals drawn from the 2002 and 2004 italian surveys of household income and wealth one of the most appealing features of the survey is that it has data on the amount of wealth held for precautionary purposes which we interpret as target wealth in a buffer stock model the test results do not support buffer stock behavior even among population groups that are more likely a priori to display such behavior the saving behavior of young households is instead consistent with models in which impatience relative to prudence is not as high as in buffer stock models jel d91

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

velocity effects of anticipated and unanticipated money growth and its variability the purpose of this paper is to empirically test the relationship between velocity growth and anticipated and unanticipated money growth and its variability in particular by decomposing actual monetary growth into anticipated and unanticipated components the study investigates whether knowledge of past variability of anticipated and unanticipated monetary growth improves the prediction of future velocity growth beyond predictions that are based on past velocity growth alone this is the empirical definition of granger causality comparasions are made in all tests among simple sum and divisia aggregates of m1 m2 m3 and l and with spindt s monetary velocity mq aggregate

intertemporal choice and consumption mobility the theory of intertemporal consumption choice makes sharp predictions about the evolution of the entire distribution of household consumption not just about its conditional mean in the paper we study the empirical transition matrix of consumption using a panel drawn from the bank of italy survey of household income and wealth we estimate the parameters that minimize the distance between the empirical and the theoretical transition matrix of the consumption distribution the transition matrix generated by our estimates matches remarkably well the empirical matrix both in the aggregate and in samples stratified by education our estimates strongly reject the consumption insurance model and suggest that households smooth income shocks to a lesser extent than implied by the permanent income hypothesis jel d52 d91 i30

velocity and the variability of money growth evidence from granger causality tests note economists and policy makers were caught off guard by the behavior of the income velocity of money in 1982 the velocity of m1 which had grown at a 3 3 percent average annual rate from 1970 1981 fezl by 4 4 percent in 1982 in the fourth quarter of 1982 the decline was 12 6 percent at an annual rate the 1982 decline in velocity significantly reduced nominal gnp growth and may have helped cause the fall in real gnp the 1982 episode has generated quite a bit of controversy the decline in velocity is important not only for its possible relation to real gnp but also because it has led some economists to seriously question monetarism monetarists believe that there is a predictable link between money growth and nominal gnp growth when velocity declined in 1982 that link appeared to have weakened seemingly undermining the monetarist beliefs in fact robert gordon 1983 has called the 1982 episode the velocity recession and the demise of monetarism milton friedman 1984 has stated that the decline in velocity does not undermine monetarism at all he believes that velocity fell because of the extreme volatility of money growth following the announced change in federal reserve operating procedures in october 1979 figure 1 shows the income velocity of m1 v and the standard deviation of current and seven lags of m1 growth s a large increase in the volatility of money growth in 1980 precedes the decline in velocity in 1982 based on this friedman states that the 1982 episode strengthens not weakens the case for the monetarist proposition of a constant growth rule of the money supply this paper uses the granger causality method to test friedman s hypothesis that the volatility of money growth causes velocity to change we conclude that friedman is correct i e the volatility of money measured by the standard deviation of money growth causes velocity in the granger sense in the next section we review some of the recent explanations offered by economists for the 1982 decline in velocity the concluding section presents our results of the granger tests of friedman s hypothesis

the surprisingly low importance of income uncertainty for precaution abstract while it is common to use income uncertainty to explain household saving decisions there is much disagreement about the importance of precautionary saving this paper suggests that income uncertainty is not an important motive for saving although households do have other precautionary reasons to save using a question from the survey of consumer finances that asks how much households want for precautionary purposes this paper shows that expressed household preferences and liquid savings are much lower than predicted by standard modeling assumptions households rarely list unemployment as a reason to save perceived income uncertainty does not affect liquid savings or precautionary preferences neither does being in an occupation with higher income volatility instead households seem very concerned with expenditure shocks

the consumption and wealth effects of an unanticipated change in lifetime resources in 2000 italy replaced its traditional system of severance pay for public employees with a new system under the old regime severance pay was proportional to the final salary before retirement under the new regime it is proportional to lifetime earnings this reform entails substantial losses for future generations of public employees in the range of 20 000 30 000 depending on seniority using a difference in difference framework we estimate the impact of this unanticipated change in lifetime resources on the current consumption and wealth accumulation of employees affected by the reform in line with theoretical simulations we find that each euro reduction in severance pay reduces the average propensity to consume by 3 cents and increases the wealth income ratio by 0 32 the response is stronger for younger workers and for households where both spouses are public sector employees this paper was accepted by amit seru finance

implementation of the lindahl correspondence by a single valued feasible and continuous mechanism this paper considers the problem of designing mechanisms whose nash allocations coincide with the lindahl allocations for public goods economies with more than one private good unlike previous mechanisms the mechanism presented here has a single valued feasible and continuous outcome function furthermore when there are no public goods in economies feasible and continuous implementation of the constrained walrasian correspondence can be obtained as a corollary of our theorem 1

long and short term interest rates in a risky world abstract the paper develops and tests a general equilibrium model in which variability or risk affects the choice of portfolios our measures of variability include only the variability of unanticipated growth in monetary and non monetary aggregates and our tests use data ending with the change in federal reserve procedures in october 1979 we find that increased variability of unanticipated money growth raises demands for debt and money and reduces the demand for real capital interest rates on both short and long term debt rise by a risk premium we estimate the size of the risk premium before and after the october 1979 change and we show that the change in federal reserve procedures moved the economy to a less efficient point

open access and the evolution of the u s spot market for natural gas federal regulations promoting open access transportation dramatically altered the organizational structure of the u s market for natural gas in the 1980s generally unbundling the merchant and transport functions of interstate pipelines an empirical analysis of wellhead spot prices is undertaken to examine the effect of open access on the geographic scope of the spot market using monthly spot price data from 1984 91 three statistical tests are applied and compared price correlations granger causality and cointegration we find that open access integrated the regional wellhead markets into a national competitive market for natural gas the effects of unbundling on contracts for natural gas are then investigated incentives for long term contracts between pipelines and producers are shown to be effectively removed by the introduction of competitive buying and selling of gas at the wellhead through open access

friedman s money supply volatility hypothesis some international evidence results of granger causality tests on data for the major industrial countries indicate that the volatility of the money supply is of little help in predicting income velocity results from nine industrial countries find no evidence of such a relationship in six cases and in the remaining three cases the evidence of a relationship was not found to be robust to changes in sample period copyright 1995 by ohio state university press

consumption and capital market imperfections an international comparison the excess sensitivity of consumption to current income fluctuations is higher in countries where consumers borrow less low levels of consumer debt can result either from capital market imperfections or from a low demand for loans the evidence suggests that the former view is more appropriate than the latter and thus supports the hypothesis that excess sensitivity may be attributed to liquidity constraints rather than to other factors copyright 1989 by american economic association

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

recursive equilibria in an aiyagari style economy with permanent income shocks in this paper we prove the existence of a recursive competitive equilibrium rce for an aiyagari style economy with permanent income shocks and perpetual youth structure we show that there exist equilibria where borrowing constraints are never binding this allows us to establish a non trivial lower bound on the equilibrium interest rate to solve the individual s problem we present a new approach that uses lattices of consumption functions to deal with the non compact state space and the unbounded utility function the approach uses only the first order conditions of the problem euler equations the proof is constructive and it serves as a theoretical foundation for the convergence of a policy function iteration procedure