Data sources for the credit-card augmented Divisia monetary aggregates

Barnett, William A.; Su, Liting

doi:10.1016/j.ribaf.2016.04.008

Cited by 7 publications

(13 citation statements)

References 4 publications

(7 reference statements)

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“…For detailed information on CFS data sources, see Barnett et al (2013). For the additional data sources used by the CFS to extend to credit card services, see Barnett and Su (2017).…”

Section: Discussionmentioning

confidence: 99%

Risk Adjustment of the Credit-Card Augmented Divisia Monetary Aggregates

Barnett

2018

Macroecon. Dynam.

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While credit cards provide transactions services, as do currency and demand deposits, credit cards have never been included in measures of the money supply. The reason is accounting conventions, which do not permit adding liabilities, such as credit card balances, to assets, such as money. However, economic aggregation theory and index number theory measure service flows and are based on microeconomic theory, not accounting. Barnett et al. derived the aggregation and index number theory needed to measure the joint services of credit cards and money. They derived and applied the theory under the assumption of risk neutrality. But since credit card interest rates are high and volatile, risk aversion may not be negligible. We extend the theory by removing the assumption of risk neutrality to permit risk aversion in the decision of the representative consumer.

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“…For detailed information on CFS data sources, see Barnett et al (2013). For the additional data sources used by the CFS to extend to credit card services, see Barnett and Su (2017).…”

Section: Discussionmentioning

confidence: 99%

Risk Adjustment of the Credit-Card Augmented Divisia Monetary Aggregates

Barnett

2018

Macroecon. Dynam.

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“…The interest rate on credit card transaction volumes, t e , is much higher than the benchmark asset rate, because t e is the interest rate on an unsecured liability, subject to substantial default and fraud risk. The value of t e that we are using is the explicit interest rate on credit card service, as in Barnett and Su (2017). There also is implicit interest on credit card services, such as the annual service fees and increased price of goods commonly purchased with credit cards.…”

Section: Consumer's Optimization Problemmentioning

confidence: 99%

“…We are currently working on implementing this paper's theory for a future empirical paper. The data source for credit card services are documented in Barnett and Su (2017). An extension of the current paper could be to introduce heterogeneous agents.…”

Section: Empirical Studymentioning

confidence: 99%

User cost of credit card services under risk with intertemporal nonseparability

Barnett

Liu

2019

Journal of Financial Stability

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This paper derives the user cost of monetary assets and credit card services with interest rate risk under the assumption of intertemporal non-separability. Barnett and Su (2016) derived theory permitting inclusion of credit card transaction services into Divisia monetary aggregates. The risk adjustment in their theory is based on CCAPM 1 under intertemporal separability. The equity premium puzzle focusses on downward bias in the CCAPM risk adjustment to common stock returns. Despite the high risk of credit card interest rates, the risk adjustment under the CCAPM assumption of intertemporal separability might nevertheless be similarly small. While the known downward bias of CCAPM risk adjustments are of little concern with Divisia monetary aggregates containing only low risk monetary assets, that downward bias cannot be ignored, once high risk credit card services are included. We believe that extending to intertemporal non-separability could provide a non-negligible risk adjustment, as has been emphasized by Barnett and Wu (2015). In this paper, we extend the credit-card-augmented Divisia monetary quantity aggregates to the case of risk aversion and intertemporal non-separability in consumption. 1 CCAPM is the "consumptions capital asset pricing model," as opposed to the conventional "capital asset pricing model," CAPM. Our results are for the "representative consumer" aggregated over all consumers. While credit-card interest-rate risk may be low for some consumers, the volatility of credit card interest rates for the representative consumer is high, as reflected by the high volatility of the Federal Reserve's data on credit card interest rates aggregated over consumers. 2 One method of introducing intertemporal non-separability is to assume habit formation. We explore that possibility. To implement our theory, we introduce a pricing kernel, in accordance with the approach advocated by Barnett and Wu (2015). We assume that the pricing kernel is a linear function of the rate of return on a well-diversified wealth portfolio. We find that the risk adjustment of the credit-card-services user cost to its certainty equivalence level can be measured by its beta. That beta depends upon the covariance between the interest rates on credit card services and on the wealth portfolio of the consumer, in a manner analogous to the standard CAPM adjustment. As a result, credit card services' risk premia depend on their market portfolio risk exposure, which is measured by the beta of the credit card interest rates. We are currently conducting research on empirical implementation of the theory proposed in this paper. We believe that under intertemporal non-separability, we will be able to generate an accurate credit-card-augmented Divisia monetary index to explain the available empirical data.

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“…Hence, this technique assigns equal weights to all financial assets regardless of varying degrees of "moneyness". This is based on a strong assumption that all components of monetary aggregates are perfect substitutes (Barnett and Su 2017;Darvas 2015;Barnett 1980, 2003, Alkhareif and Barnett, 2012 and gains theoretical support from the notion of classical economists that the essential function of money is to serve as a medium of exchangeto facilitate transactions only. Thus, based on this definition of money, monetary aggregates comprise of only two components: currency and demand deposits (Barnett, 1984).…”

Section: Review Of Literaturementioning

confidence: 99%

On the monetary measures of global liquidity

Hashmi

Bhatti

2019

Financ Innov

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This study constructs and examines the dynamics of theoretical and atheoretical measures of global liquidity, using monthly data on the components of broad money over the period 2001 M12-2017 M12 for 39 high income countries. We group the countries into five regional blocks as categorized by the World Bank: East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, and North America. The atheoretical measures exploited by this study comprise of the simple-sum, GDP-weighted growth rates and PCA based aggregation methods; whereas theoretical measures include the currency equivalent and Divisia index techniques of monetary aggregation. We employ a graphical approach to investigate the trends and dynamics of the aggregates overtime, and a cross-correlation between cyclical components of global real economic activity and the lag of cyclical components of the measures of global liquidity to gauge the strength of their associations. The findings of this study reveal that theoretical measures outperform atheoretical ones in effective delineation of financial and liquidity conditions, and policy stance. Their cyclical components are also strongly associated with those of global real business activity. The currency equivalent measure, besides being a leading indicator of the shift in policy stance, has a sturdy association with global real business activity. Moreover, the theoretical measures, as noted by some empirical studies, contain some information content that the atheoretical lack.

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Data sources for the credit-card augmented Divisia monetary aggregates

Cited by 7 publications

References 4 publications

Risk Adjustment of the Credit-Card Augmented Divisia Monetary Aggregates

Risk Adjustment of the Credit-Card Augmented Divisia Monetary Aggregates

User cost of credit card services under risk with intertemporal nonseparability

On the monetary measures of global liquidity

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