The Discounted Economic Stock of Money with VAR Forecasting

Barnett, William A.; Keating, John W.; Chae, Unja

doi:10.1007/s10436-006-0038-y

Cited by 13 publications

(46 citation statements)

References 21 publications

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“…This assumption produced reluctance to accept the currency equivalent index as a measure of the money stock. However, Barnett et al (2005) showed that the resulting bias is relatively small, when compared to the bias observed in the simple sum aggregates. Moreover, we nd that by allowing total expenditure on monetary services to increase over time, the bias observed in the currency equivalent index can be reduced by nearly 63%.…”

Section: Resultsmentioning

confidence: 91%

“…In order to compare the performance of the MCE relative to the CE, we compare each to the perfect foresight ESM calculated by Barnett et al (2005). 4 Figures 2, 4 and 6 show the percentage deviation of the MCE from PF, which is the perfect foresight ESM, as compared to the CE.…”

Section: Resultsmentioning

confidence: 99%

“…Thus, to calculate the CE, we assume that total expenditure on monetary assets follows a martingale process. Barnett et al (2005) showed that this assumption results in a small downward bias because total expenditure on monetary services trends upwards over time (see gure 1). 3 Thus, as we move further into the future, the assumptions upon which the CE rests do not match an important characteristic of the data.…”

Section: Source Of Bias Observed In Currency Equivalent Indexmentioning

confidence: 99%

“…Barnett showed that the currency equivalent index (CE), rst suggested by Hutt (1963) and formally derived by Rotemberg et al (1995), provides an elegant solution, but it does so by making strong assumptions about expectations of future monetary service ows. Barnett et al (2005) found that these assumptions cause the CE to exhibit signi cant downward bias. In this paper, we propose an extension to the CE that will correct for a signi cant amount of this bias.…”

Section: Introductionmentioning

confidence: 99%

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Toward a bias corrected currency equivalent index

2008

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Measuring the economic stock of money, de ned to be the present value of current and future monetary service ows, is a di cult asset pricing problem, because most monetary assets yield interest. Thus, an interest yielding monetary asset is a joint product: a durable good providing a monetary service ow and a nancial asset yielding a return. The currency equilivant index provides an elegant solution, but it does so by making strong assumptions about expectations of future monetary service ows. These assumptions cause the currency equivalent index to exhibit signi cant downward bias. In this paper, we propose an extension to the currency equivalent index that will correct for a signi cant amount of this bias.

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Section: Resultsmentioning

confidence: 91%

Section: Resultsmentioning

confidence: 99%

Section: Source Of Bias Observed In Currency Equivalent Indexmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Toward a bias corrected currency equivalent index

2008

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“…The currency equivalent index (CE) provides a simple method for measuring the ESM, but it rests upon assumptions that do not match an important characteristic of the data (see Barnett, Keating, and Kelly, 2008). Specically, Barnett (1991) assumed that total nominal expenditure on monetary services (TE) follows a martingale process.…”

Section: Introductionmentioning

confidence: 99%

The Currency Equivalent Index and the Current Stock of Money

Kelly

2008

SSRN Journal

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The currency equivalent index provides an elegant method for measuring the stock of money, but it rests upon assumptions that do not match an important characteristic of the data. Thus, it is unclear what, if anything, the CE measures. This paper attempts to answer this question by deriving the current stock of money (CSM), which is dened to be the discounted present value of the monetary service ows provided by only the current portfolio of monetary assets, and then analyzing the assumptions under which the current stock of money can be measured by the currency equivalent index.

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International Financial Aggregation and Index Number Theory: A Chronological Half-century Empirical Overview

Barnett

Chauvet

2008

Open Econ Rev

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This paper comprises a survey of a half century of research on international monetary aggregate data. We argue that since monetary assets began yielding interest, the simple sum monetary aggregates have had no foundations in economic theory and have sequentially produced one source of misunderstanding after another. The bad data produced by simple sum aggregation have contaminated research in monetary economics, have resulted in needless "paradoxes," and have produced decades of misunderstandings in international monetary economics research and policy. While better data, based correctly on index number theory and aggregation theory, now exist, the official central bank data most commonly used have not improved in most parts of the world. While aggregation theoretic monetary aggregates exist for internal use at the European Central Bank, the Bank of Japan, and many other central banks throughout the world, the only central banks that currently make aggregation theoretic monetary aggregates available to the public are the Bank of England and the St. Louis Federal Reserve Bank. No other area of economics has been so seriously damaged by data unrelated to valid index number and aggregation theory. In this paper we chronologically review the past research in this area and connect the data errors with the resulting policy and inference errors. Future research on monetary aggregation and policy can most advantageously focus on extensions to exchange rate risk and its implications for multilateral aggregation over monetary asset portfolios containing assets denominated in more than one currency. The relevant theory for multilateral aggregation with exchange rate risk has been derived by Barnett (2007) and Barnett and Wu (2005).

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The Discounted Economic Stock of Money with VAR Forecasting

Abstract: Monetary aggregation, Divisia money aggregate, Economic stock of money, User cost of money, Currency equivalent index, Bayesian vector autoregression, Asymmetric vector autoregression, E41, G12, C43, C22, E5,

Cited by 13 publications

References 21 publications

Toward a bias corrected currency equivalent index

Toward a bias corrected currency equivalent index

The Currency Equivalent Index and the Current Stock of Money

International Financial Aggregation and Index Number Theory: A Chronological Half-century Empirical Overview

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