Kelly, Logan J (2008): The Stock of Money and Why You Should Care.
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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 > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
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:||03. Dec 2008 18:27|
|Last Modified:||18. Feb 2013 19:12|
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The Stock of Money and Why You Should Care. (deposited 07. Nov 2008 23:08)
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