Barnett, William and Su, Liting (2016): Risk adjustment of the creditcard augmented Divisia monetary aggregates.
This is the latest version of this item.
Preview 
PDF
MPRA_paper_73385.pdf Download (405kB)  Preview 
Abstract
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, Chauvet, LeivaLeon, and Su (2016) 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.
Item Type:  MPRA Paper 

Original Title:  Risk adjustment of the creditcard augmented Divisia monetary aggregates 
Language:  English 
Keywords:  Credit Cards, Money, Credit, Aggregation, Monetary Aggregation, Index Number Theory, Divisia Index, Risk, Euler Equations, Asset Pricing. 
Subjects:  C  Mathematical and Quantitative Methods > C4  Econometric and Statistical Methods: Special Topics > C43  Index Numbers and Aggregation C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C53  Forecasting and Prediction Methods ; Simulation Methods C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C58  Financial Econometrics E  Macroeconomics and Monetary Economics > E1  General Aggregative Models E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E40  General E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E41  Demand for Money 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 > E5  Monetary Policy, Central Banking, and the Supply of Money and Credit > E58  Central Banks and Their Policies G  Financial Economics > G1  General Financial Markets > G17  Financial Forecasting and Simulation 
Item ID:  73385 
Depositing User:  William A. Barnett 
Date Deposited:  29 Aug 2016 17:26 
Last Modified:  28 Sep 2019 11:46 
References:  Arrow, K. J. and F. Hahn (1971). General Competitive Analysis. San Francisco, HoldenDay. Barnett, W. A. (1978). "The User Cost of Money," Economics Letter 1: 145149. Reprinted in W. A. Barnett and A. Serletis (eds.), 2000, The Theory of Monetary Aggregation, North Holland, Amsterdam, chapter 1: 610. Barnett, W. A. (1980). "Economic Monetary Aggregates: An Application of Aggregation and Index Number Theory," Journal of Econometrics 14: 1148. Reprinted in W. A. Barnett and A. Serletis (eds.), 2000, The Theory of Monetary Aggregation, North Holland, Amsterdam, chapter 1: 610. Barnett, W. A. (1987). “The Microeconomic Theory of Monetary Aggregation,” in W. A. Barnett and K. Singleton (eds.), New Approaches to Monetary Economics, Cambridge U. Press. Reprinted in W. A. Barnett and A. Serletis (eds.), 2000, The Theory of Monetary Aggregation, North Holland, Amsterdam, chapter 3: 4999. Barnett, W.A. (1995). “Exact Aggregation under Risk,” in W. A. Barnett, M. Salles, H. Moulin, and N. Schofield (eds.), Social Choice, Welfare and Ethics, Cambridge University Press, Cambridge. Reprinted in W. A. Barnett and A. Serletis, (eds.), 2000, The Theory of Monetary Aggregation, North Holland, Amsterdam, chapter 10: 195216. Barnett, W. A. (2012). Getting It Wrong: How Faulty Monetary Statistics Undermine the Fed, the Financial System, and the Economy, MIT Press, Cambridge, MA. Barnett, W.A. and M. Chauvet (2011a). “How Better Monetary Statistics Could Have Signaled the Financial Crisis”. Journal of Econometrics 161(1): 623. Barnett, W.A. and M. Chauvet (eds) (2011b). Financial Aggregation and Index Number Theory. Singapore: World Scientific. Barnett, W. A. and A. Serletis (1990).“ A DispersionDependency Diagnostic Test for Aggregation Error: with Applications to Monetary Economics and Income Distribution,” Journal of Econometrics 43: 534. Reprinted in W. A. Barnett and A. Serletis (eds.), 2000, The Theory of Monetary Aggregation, NorthHolland, Amsterdam, chapter 9: 167194 Barnett, W. A. and A. Serletis (eds) (2000). The Theory of Monetary Aggregation, Contributions to Economic Analysis Monograph Series, Elsevier, Amsterdam. Barnett, W. A. and S. Wu (2005). “On User Costs of Risky Monetary Assets,” Annals of Finance1, 3550. Reprinted in W. A. Barnett and M. Chauvet (eds.), 2010, Financial Aggregation and Index Number Theory, World Scientific, Singapore, chapter 3. Barnett, W. A. and L. Su (2016). “Data Sources for the CreditCard Augmented Divisia Monetary Aggregates,” Research in International Business and Finance, Elsevier, forthcoming. Barnett, W. A., M. Chauvet, D. LeivaLeon, and L. Su (2016). “Nowcasting Nominal GDP with the CreditCard Augmented Divisia Monetary Aggregates,” Johns Hopkins University Studies in Applied Economics, SAE Working Paper No. 59. Barnett, W. A., Y. Liu, and M. Jensen (1997). “The CAPM Risk Adjustment for Exact Aggregation over Financial Assets,” Macroeconomic Dynamics 1: 485512.Reprinted in W. A. Barnett and A. Serletis (eds.), 2000, The Theory of Monetary Aggregation, North Holland, Amsterdam, chapter 12: 245295. Barnett, W.A., J. Liu, R.S. Mattson, and J. van den Noort (2013). "The New CFS Divisia Monetary Aggregates: Design, Construction, and Data Sources," Open Economies Review 24: 101124. Belongia, M.T. and P.N. Ireland (2014). “The Barnett Critique after Three Decades: A New Keynesian Analysis”. Journal of Econometrics 183(1): 521. Belongia, M.T. and P.N. Ireland (2015a). “Interest Rates and Money in the Measurement of Monetary Policy.” Journal of Business and Economic Statistics 332: 255269. Belongia, M.T. and P.N. Ireland (2015b). “A ‘Working’ Solution to the Question of Nominal GDP Targeting.”Macroeconomic Dynamics 19: 508534. Belongia, M.T. and P.N. Ireland (2016). “Money and Output: Friedman and Schwartz Revisited.” Journal of Money, Credit and Banking 48(6): 12231266. Campbell, J. Y. and J. H. Cochrane (1999). “By force of Habit: a ConsumptionBased Explanation of Aggregate Stock Market Behavior,” Journal of Political Economy 107: 205–251. Cherchye, L., T. Demuynck, B. D. Rock, and P. Hjerstrand (2015), “Revealed Preference Tests for Weak Separability: An Integer Programming Approach,” Journal of Econometrics 186(1): 129141. Cochrane, J. H. (2000). Asset Pricing, Princeton University Press, Princeton, NJ. Divisia, F. (1925 and 1926). “L’IndiceMonétaire et la Théorie de la Monniae”. Revue d’ÉconomiePolitique 39: 84261, 9801008 and 112151; and 40: 4987. Feenstra, Robert C. (1986). "Functional Equivalence Between Liquidity Costs and the Utility of Money," Journal of Monetary Economics, March, 271291. Fischer, Stanley (1974). "Money and the Production Function," Economic Inquiry 12, pp. 51733. Hjertstrand, Per, J. L. Swofford, and G. Whitney (2016). “Revealed Preference Tests of Utility Maximization and Weak Separability of Consumption, Leisure and Money with Incomplete Adjustment, Journal of Money, Credit, and Banking, forthcoming. Ingersoll, J. E. (1987). Theory of Financial Decision Making, Rowman and Littlefield, Totowa, NJ. Kocherlakota, N. (1996). “The Equity Premium: It’s Still a Puzzle,” Journal of Economic Literature 34: 43–71. Lucas, R. E. (1978). “Asset Prices in an Exchange Economy,” Econometrica 46: 14291445. Marshall, D (1997). “Comments on CAPM Risk Adjustment for Exact Aggregation over Financial Assets, Macroeconomic Dynamics 1: 513–523. Mehra, R. and E. C. Prescott (1985). “The Equity Premium: A Puzzle,” Journal of Monetary Economics 15, 14561. Phlips, Louis and Frans Spinnewyn (1982). "Rationality versus Myopia in Dynamic Demand Systems," in R. L. Basmann and G. F. Rhodes (eds.), Advances in Econometrics, JAI Press, pp. 333. Poterba, J.M. and J.J. Rotemberg (1987). “Money in the Utility Function: An Empirical Implementation,” Chapter 10 in W.A. Barnett and K.J. Singleton (eds) New Approaches to Monetary Economics. Cambridge: Cambridge University Press: 21940. Quirk, J. and R. Saposnik (1968). Introduction to General Equilibrium Theory and Welfare Economics. New York: McGrawHill. Rubinstein, M. (1976). “The Valuation of Uncertain Income Streams and the Pricing of Options,” Bell Journal of Economics 7: 407425. Samuelson, Paul (1948). Foundations of Economic Analysis, Harvard University Press, Cambridge, Mass. Serletis, A. and P. Gogas (2014).“Divisia Monetary Aggregates, the Great Ratios, and Classical Money Demand Functions,” Journal of Money, Credit and Banking 46(1): 22941. Serletis, A. and S. Rahman (2013). “The Case for Divisia Money Targeting,” Macroeconomic Dynamics 17: 16381658. Stein, C. (1973). “Estimation of the Mean of a Multivariate Normal Distribution,” Proceedings of the Prague Symposium on Asymptotic Statistics, September. Telyukova, I. and R. Wright (2008). “A Model of Money and Credit, with Application to the Credit Card Debt Puzzle,” Review of Economic Studies 75: 629647. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/73385 
Available Versions of this Item

Risk adjustment of the creditcard augmented Divisia monetary aggregates. (deposited 22 Aug 2016 15:24)
 Risk adjustment of the creditcard augmented Divisia monetary aggregates. (deposited 29 Aug 2016 17:26) [Currently Displayed]