Kelly, Logan J (2008): The Stock of Money and Why You Should Care.
Download (359Kb) | Preview
In this paper, I will examine the problems created by incorrectly using a simple sum monetary aggregate to measure the monetary stock. Specifically, I will show that simple sum monetary aggregate confounds the current stock of money with the investment stock of money and that this confounding leads the simple sum monetary aggregate to report an artificially smooth monetary stock. This smoothing causes important information about the dynamic movements of the monetary stock to be lost. This may offer at least a partial explanation of why so many studies find that money has little economic relevance. To that end, we will conclude the paper by examining a reduced form backward looking IS equation to determine whether monetary aggregates contain information about real GDP gap. This paper differs from previous work in that it focuses on smoothing of the monetary stock data caused by the use of simple sum methodology, where the previous work focuses on the bias exhibited by simple sum monetary aggregates.
|Item Type:||MPRA Paper|
|Original Title:||The Stock of Money and Why You Should Care|
|Keywords:||Monetary Aggregation, Money Stock, Currency Equivalent Index|
|Subjects:||C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C43 - Index Numbers and Aggregation
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E49 - Other
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E47 - Forecasting and Simulation: Models and Applications
|Depositing User:||Logan Kelly|
|Date Deposited:||07. Nov 2008 23:08|
|Last Modified:||25. Feb 2013 12:03|
Barnett, W. A., 1991. A reply to Julio J. Rotemberg. In: Belongia, M. T. (Ed.), Monetary Policy on the 75th Anniversary of the Federal Reserve System. Proceedings of the Fourteenth Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis, Kluwer, pp. 189222. Reprinted in The Theory of Monetary Aggregation, William Barnett and Apostolos Serletis(eds.), 2000, Amsterdam: Elsevier, 296-306 . Barnett, W. A., 1995. Exact aggregation under risk. In: Barnett, W. A., Salles,M., Moulin, H., Schoeld, N. (Eds.), Social Choice, Welfare and Ethics. Pro-ceedings of the Eighth International Symposium in Economic Theory and Econometrics, Cambridge University Press, pp. 353-374. Reprinted in The Theory of Monetary Aggregation, William Barnett and Apostolos Serletis(eds.), 2000, Amsterdam: Elsevier, 195-216.
Barnett, W. A., Chae, U., Keating, J. W., July 2005. The discounted economic stock of money with VAR forecasting. Annals of Finance 2 (2), 229-258.
Barnett, W. A., Keating, J., Kelly, L. J., 2008. Toward a bias corrected currency equivalent index. Economics Letters 100, 448-451.
Barnett, W. A., Liu, Y., Jensen, M., 1997. CAPM risk adjustment for exact aggregation over nancial assets. Macroeconomic Dynamics 1 (2), 485-512. Reprinted in The Theory of Monetary Aggregation, William Barnett and Apostolos Serletis (eds.), 2000, Amsterdam: Elsevier, 245-273.
Barnett, W. A., Serletis, Apostolos, e., 2000. The theory of monetary aggregation. Contributions to Economic Analysis, vol. 245. Amsterdam: Elsevier.
Blanchard, O. J., Fischer, S., 1989. Lectures on Macroeconomics. Cambridge: MIT Press.
Cochrane, J. H., 2005. Asset Pricing, Revised Edition. Princeton: Princeton University Press.
Hafer, R. W., Haslag, J. H., Jones, G., 2007. On money and outpt: Is money redundant? Journal of Monetary Economics 54, 945-954.
Kelly, L. J., June 2008. The currency equivalent index and the current stock of money.
Leeper, E. M., Roush, J. E., 2003. Putting 'M' back in monetary policy. Journal of Money, Credit, and Banking 35 (6), 1217 - 1256.
Meltzer, A. H., 2001. The Monetary Transmission Process: Recent Developments and Lessons for Europe. Palgrave, London, Carnegie Mellon U, Ch. The Transmission Process, pp. 112-130.
Nelson, E., 2002. Direct eects of base money on aggregate demand: Theory and evidence. Journal of Monetary Economics 49 (4), 687-708.
Rotemberg, J. J., Driscoll, J. C., Poterba, J. M., 1995. Money, output, and prices: Evidence from a new monetary aggregate. Journal of Business and Economic Statistics 13 (1), 67-83.
Rudebusch, G. D., Svensson, L. E. O., 2002. Eurosystem monetary targeting: Lessons from U.S. data. European Economic Review 46 (3), 417-442.
Sims, C. A., 1980. Comparison of interwar and postwar business cycles: Monetarism reconsidered. American Economic Review 70 (2), 250-257.
Available Versions of this Item
- The Stock of Money and Why You Should Care. (deposited 07. Nov 2008 23:08) [Currently Displayed]