Money, Output, and Prices: Evidence from a New Monetary Aggregate

Rotemberg, Julio J.; Driscoll, John C.; Poterba, James M.

doi:10.2307/1392522

Cited by 36 publications

(19 citation statements)

References 30 publications

(9 reference statements)

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“…The BVAR model can be estimated using Theil's (1971) The choice of benchmark rate can have important consequences for the economic stock of money or the currency equivalent index. Rotemberg, Driscoll and Poterba (1995) used the commercial paper rate and found that their CE index was extremely volatile. Our benchmark rate path is the upper envelope over the paths of Moody's BAA bond rate and all the interest rates that go into the calculation of ESM, as in Anderson,17 At each level of aggregation, j, total expenditure on the monetary services, , was computed from the first equality in equation (3.6).…”

Section: Bayesian Varsmentioning

confidence: 99%

“…R − , for each asset, but also the smoothed CE index. In smoothing the volatile contemporaneous CE index, Rotemberg, Driscoll, and Poterba (1995) used centered moving averages of the weights. Following the same smoothing procedure, we computed smoothed CE index by replacing weights of monetary assets with 13-month centered moving averages of the weights.…”

Section: Economic Stock Of Money Computed Using Actual Datamentioning

confidence: 99%

“…In particular, the formula for ESM is consistent with valuation of a cash-flow generating asset by discounting the flow to present value. Second, the economic monetary stock provides a general capital stock formula that nests the simple sum index and the currency equivalent (CE) index (of Rotemberg (1991) and Rotemberg, Driscoll, and Poterba (1995)) as special cases.…”

Section: Introductionmentioning

confidence: 99%

“…We plan to do so without the use of the smoothing procedure advocated byRotemberg, Driscoll, and Poterba (1995), since that smoothing compromises the theory. But for consistency with the past literature, we have computed the CE in this paper with their smoothing filter.…”

mentioning

confidence: 99%

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Forecast Design in Monetary Capital Stock Measurement

2012

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We design a procedure for measuring the United States capital stock of money implied by the Divisia monetary aggregate service flow, in a manner consistent with the present-value model of economic capital stock. We permit non-martingale expectations and time varying discount rates. Based on Barnett's (1991) definition of the economic stock of money, we compute the U.S. economic stock of money by discounting to present value the flow of expected expenditure on the services of monetary assets, where expenditure on monetary services is evaluated at the user costs of the monetary components. As a theoretically consistent measure of money stock, our economic stock of money nests Rotemberg, Driscoll, and Poterba's (1995) currency equivalent index as a special case, under the assumption of martingale expectations. To compute the economic stock of money without imposing martingale expectations, we define a procedure for producing the necessary forecasts based on an asymmetric vector autoregressive model and a Bayesian vector autoregressive model. In application of this proposed procedure, Barnett, Chae, and Keating (2005) find the resulting capital-stock growth-rate index to be surprisingly robust to the modeling of expectations. Similarly the primary conclusions of this supporting paper regard robustness. We believe that further experiments with other forecasting models would further confirm our robustness conclusion. Different forecasting models can produce substantial differences in forecasts into the distant future. But since the distant future is heavily discounted in our stock formula, and since alternative forecasting formulas rarely produce dramatic differences in short term forecasts, we believe that our robustness result obviates prior concerns about the dependency of theoretical monetary capital stock computations upon forecasts of future expected flows. Even the simple martingale forecast, which has no unknown parameters and is easily computed with current period data, produces a discounted stock measure that is adequate for most purposes. Determining an easily measured extended index that can remove the small bias that we identify under the martingale forecast remains a subject for our future research. At the time that Milton Friedman (1969) was at the University of Chicago, the "Chicago School" view on the monetary transmission mechanism was based upon the wealth effect, called the "real balance effect" or "Pigou (1943) effect," of open market operations. Our research identifies very large errors in the wealth effects computed from the conventional simple sum monetary aggregates and makes substantial progress in the direction of accurate measurement of monetary-policy wealth effects.

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Section: Bayesian Varsmentioning

confidence: 99%

Section: Economic Stock Of Money Computed Using Actual Datamentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

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Forecast Design in Monetary Capital Stock Measurement

2012

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“…A long literature exists on testing that weak separability assumption. See, e.g.,Barnett (1982b),Barnett and Choi (1989),Belongia and Chalfant (1989), andSwofford and Whitney (1987).3 Assuming that X is linearly homogeneous, the exact price aggregator function is the unit cost function.4 Also seeRotemberg, Driscoll, and Poterba (1994).…”

mentioning

confidence: 99%

Beyond the Risk-neutral Utility Function

Barnett¹,

Liu²

2000

Divisia Monetary Aggregates

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The Demand For Money: A Structural Econometric Investigation

Dutkowsky

Atesoglu²

2001

Southern Economic Journal

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This study empirically investigates dynamic microfoundations for the conventional static money demand equation. An intertemporal substitution model with the addilog utility function yields a money demand relationship that closely approximates the double log specification. Results from previous empirical studies largely support the derived equation. Estimations with quarterly U.S. data support cointegration among real per capita M1 and consumption, and an after‐tax long‐term interest rate for the post‐1980 period. Estimated short‐run intertemporal interest rate elasticities of consumption vary from ‐0.26 to ‐0.93. Estimated long‐run elasticities of substitution between consumption and money range from ‐0.26 to ‐0.41.

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Money, Output, and Prices: Evidence from a New Monetary Aggregate

Cited by 36 publications

References 30 publications

Forecast Design in Monetary Capital Stock Measurement

Forecast Design in Monetary Capital Stock Measurement

Beyond the Risk-neutral Utility Function

The Demand For Money: A Structural Econometric Investigation

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