ESTIMATING THE LIQUIDITY OF M2 COMPONENTS IN THE POST-DIDMCA ERA

This paper estimates the liquidity of M2 components within an intertemporal model of a representative household. A modification of Pfann and Verspagen's asymmetric adjustment cost function measures liquidity cost. Generalized Method of Moments estimation of structural parameters using monthly data for December 1983–March 1993 reveals significant evidence of asymmetry toward decreasing asset holdings for all components except demand deposits. Estimated withdrawal costs for savings deposits, money market mutual funds, and small time deposits are small. Split sample estimations suggest greater liquidity in the more recent period. The results point to the effects of financial innovation in lowering withdrawal costs. (JEL E51, D91)     

The time-varying performance of the long-run demand for money in the United States

This article investigates the issues of the stability and predictability and interest-sensitivity of money demand over 1870–1997. Two different estimation methodologies are used - random coefficient (RC) modeling and vector error correction (VEC) modeling. The former procedure allows the profiles of the coefficients to be traced over time and relaxes several restrictions routinely imposed in applied work. The results indicate that different estimation methodologies using different data periods and frequencies yield estimates of some of the coefficients of the long-run demand for money that fall within a fairly narrow range. The results also suggest that specification errors have had an important influence on the time profile of the interest elasticity of money demand and that there is a tendency for the interest elasticity to decline in absolute value as interest rates decline.     

Patterns of Intergenerational Transfers in Southeast Asia

This article explores motivations for intergenerational exchanges of time and money using data from Indonesia. The extent of exchange and underlying motivations differ across families but substantial evidence supports the theory that transfers within families serve as insurance for family members. The results also suggest that between some parents and children money is exchanged for time. Additionally, some evidence is consistent with the idea that parents pay for their children's education partly as a loan that is later repaid. The authors compare their results to those that they obtained previously for Malaysia using similar data and methods. The findings regarding motivations for transfers are remarkably similar across the two countries.     

THE EMPIRICAL RELIABILITY OF MONETARY AGGREGATES AS INDICATORS: 1983–1987

It is widely believed that monetary aggregates have failed to predict economic performance over 1983-87. This paper observes that the traditional definition of money (M1 lessother checkable deposits, or M1A) shows no evidence of structural change, and yields lower prediction errors for both real GNP and inflation over 1983-87Q2 than the errors obtained using M1 or M2. If there is a mystery, it is not why MIA has done so well, but why economists abandoned it for M1 or what was once called M1B (currency, demand deposits, and other checkable deposits).     

The Demand for Bank Reserves and Other Monetary Aggregates

The article starts with Haslag's (1998) model of the bank's demand for reserves and reformulates it with a cash-in-advance approach for both financial intermediary and consumer. This gives a demand for a base of cash plus reserves that is not sensitive to who gets the inflation tax transfer. It extends the model to formulate a demand for demand deposits, yielding an M 1-type demand, and then includes exchange credit, yielding an M 2-type demand. Based on the comparative statics of the model, it provides an interpretation of the evidence on monetary aggregates. This explanation relies on the nominal interest as well as technology factors of the banking sector.     

PEAK LOAD PRICING IN COMPETITIVE MARKETS

The paper offers an explanation for temporal price dispersion. Temporal price dispersion in the model is due neither to exogenous shifts in demand nor to price discrimination motives as shown in other papers. In this paper the explanation relies on peak-load pricing. In the model presented, consumers decide to purchase a given product in a certain time period according to the satisfaction they derive from the product at that time and to the prices and number of customers they expect at each firm and period. The demand in each period is controlled by sellers through prices. By offering different prices in different periods, sellers motivate consumers to spread themselves across periods in a profitable way. Therefore, the demand and price in each time period is determined endogeneously.     

INTERNATIONAL PRICE BEHAVIOR AND THE DEMAND FOR MONEY

Oil prices, commodity prices and American monetary policy, the last operating through a variety of channels, have all figured prominently in explanations of the international inflation process in the late 1960s and early 70s. OUT major purpose in this paper is to test these various hypotheses. We do so in the context of a reduced-form rational-expectations price equation which we estimate for the United States and seven other industrial countries using quarterly data for the period 1955 through 1976.
The principal conclusion that emerges from this exercise is that movements in domestic money in these countries served as the key link in the inflation process. The factors that produced these monetary changes, however, differed among countries. Price shocks of various sorts were clearly of secondary importance.
The other important set of conclusions concerns the demand for money. In place of a traditional stock adjustment model, we used GLS with a second-order correction for autocorrelation. We believe this produced more plausible estimates of the parameters of the long-run demand function and of the adjustment process itself.     

U.S. NARROW MONEY FOR THE TWENTY-FIRST CENTURY

This study focuses on sweep programs in establishing conceptually appropriate and reliable measures of narrow money. We propose the aggregates M1RS = M1 + holdings of funds swept in retail sweep programs, and M1S = M1RS + holdings of funds swept in commercial demand deposit sweep programs. Based on quarterly observations from 1959:1–2002:4, cointegration tests indicate the existence of long-run relationships between the velocity of M1S and the corresponding opportunity cost of holding money, using either short-term or long-term interest rates. Tests find weaker evidence for M1RS and little support for MZM. (JEL E41 , G21 )     

U.S. MONEY DEMAND: STRUCTURAL SHIFTS OR HETEROGENEOUS AGENTS?

This paper examines whether observed "structural shifts" in the money demand function could be the result of agent heterogeneity due to different household income levels. Following the methodology of Stoker [1986], income distribution variables are found to be significant determinants of money demand, and once changes in the distribution of income are accounted for, there is no evidence of parameter instability. A money demand function incorporating income distribution effects is shown to perform as well or better than several standard alternatives on the basis of diagnostic tests, non-nested hypothesis tests, within-sample prediction errors and out-of-sample forecasting.     

THE INCOME EFFECTS OF THE SOURCES OF MONETARY CHANGE: AN HISTORICAL APPROACH*

This paper attempts to answer the question – does the way in which the quantity of money is introduced into the economic system matter or only the amount introduced? The question of the importance of the sources of monetary change has become a key issue between Monetarists and Neo-Keynesians. The approach of the paper is to compare different periods in U. S. monetary history over the time span 1834–1914, which exhibited different sources of monetary change, to see whether the source of monetary change significantly affected the relationship between money and income between these periods, as well as within them. In the majority of cases examined, the income effects of the sources of monetary change were found to be insignificant.     

Service gratuities and tipping: A motivational framework

In many countries around the world, consumers leave voluntary payments of money (called “tips”) to service workers who have served them. Since tips are an expense that consumers are free to avoid, tipping is an anomalous behavior that many economists regard as “irrational” or “mysterious”. In this paper, I present a motivational framework that offers plausible explanations for: (1) why people tip, (2) how tipping norms came into existence and evolve over time, (3) why tipping varies across individuals and situations, (4) why tipping is more common for some occupations than others, and (5) why tipping varies across nations. Many hypotheses generated from this framework are supported by existing research, but many other implications of the framework have yet to be adequately tested. Thus, the framework provides a promising and much needed theoretical guide for future research on a fascinating consumer behavior.     

MODELING MONETARY TRENDS IN ITALY USING HISTORICAL DATA: THE DEMAND FOR BROAD MONEY 1861—1990

In this paper we estimate a stable demand for money relationship for Italy using a long series of historical data. We extend previously available data sets to obtain a sample for the years 1861 to 1990 and use cointegration analysis and two-stage estimation procedures to obtain a dynamic model for M2 demand. By employing a small number of explanatory variables and a nonlinear error-correction model we find a stable demand for money relationship. Our model incorporates significant inflation and interest rate effects, in contrast to previous studies of this type.     

MONEY DEMAND AND QUANTITY CONSTRAINTS: EVIDENCE FROM THE SOVIET INTERVIEW PROJECT

This paper examines the effects of shortages on the demand for money of Soviet citizens. It is the first to examine the demand for money in a centrally planned economy using cross-section data in which alternatives to income and interest rates are used to explain money demand. We find demand for broad money and liquid assets depends on income, illiquid wealth, participation in the underground economy, and the severity of quantity constraints as well as demographic factors. Our findings show that quantity constraints decrease demand for the national currency and increase demand for convertible currencies and barter transactions.     

COSTLY PORTFOLIO ADJUSTMENT AND THE SHORT RUN DEMAND FOR MONEY

In many empirical studies the short-run demand for money includes a lagged dependent variable; this is usually attributed to some cost of adjusting money balances toward their desired level. This short-run money-demand equation is sometimes used as a structural equation in models in which market clearing is also assumed (in the sense that money supply equals short–run money demand). In this paper, a theoretical counterexample demonstrates that this use of a short-run money demand equation is not generally valid. This finding challenges the usual interpretation of the lagged dependent variable.     

UNEMPLOYMENT AND OTHER MEASURES OF LABOR MARKET INEFFICIENCY: A COMPARISON OF U.K. AND U.S. LABOR MARKETS 1931–96

Although unemployment is often used as a measure of labor market inefficiency, economic theory indicates that market inefficiency is determined by both the gap between and the elasticities of supply and demand. Using time series data for the United States and United Kingdom, this article investigates how good the unemployment rate is as a measure of labor market inefficiency by calculating the deadweight loss associated with unemployment rates over time. Results show that the loss arising from unemployment is low across time and countries and that the unemployment rate is often a weak proxy for comparing labor market inefficiency. (JEL J6 )     

Roles of Stock Price and Exchange Rate in Slovakia's Money Demand Function and Policy Implications

The demand for real M1 in Slovakia is positively influenced by real output and the stock price and negatively associated with the deposit rate, depreciation of the koruna, the euro interest rate, and the expected inflation rate. Considering the goods and the money market simultaneously, these results suggest that a higher stock price may or may not cause real output to rise and that a depreciation of the koruna or a higher euro interest rate would help raise Slovakia's real output. The coefficients of the deposit rate and the stock price in real M2 demand are insignificant at the 10% level. The likelihood ratio test in the extended Box–Cox model shows that the double-log form cannot be rejected at the 5% level while the linear form can be rejected at the 5% level. The CUSUM and CUSUMSQ tests show that the money demand function was relatively stable.      

Cointegration and Structural Change: An Application to the U.S. Demand for Money

I perform the cointegration tests for the trivariate model of real monetary aggregates, real personal income, and short‐term interest rate. I find the existence of a long‐run relationship among these three variables. To check the stability of a long‐run money demand relationship, I implement a rank constancy test and CUSUM test. The test results show that real M1 is relatively more stable than other aggregates, but structural change occurred during the 1970s and early 1980s. This is consistent with prior research on money demand.     

ECONOMIES OF SCALE IN BANKING,INDETERMINACY, AND MONETARY POLICY

This paper investigates economies of scale (ES) in financial intermediation as a source of equilibrium indeterminacy. Financial intermediation is embedded into a standard flexible‐price monetary model, and provides deposits (inside money) that substitute with currency to purchase consumption. The results indicate that equilibrium indeterminacy does not depend on a large degree of ES in intermediation nor a large intermediation sector, but on monetary policy and the determination of nominal interest rates. Monetary policies not targeting nominal rates allow for indeterminacy to arise for any positive degree of ES, while policies targeting nominal rates eliminate indeterminacy for all degrees of ES. (JEL C62, E44, E52)     

Estimates of Money Demand Functions for Estonia

This paper examines the money demand function of Estonia in the period 1995–2006. Since Estonia has a currency board system, euro area interest rates are taken into account. We apply different cointegration procedures like the Engle–Granger, the dynamic OLS, and the Johansen procedure to estimate the long-run relationship among money, output, and interest rates. The results show that it is difficult to find a cointegrating relationship for the broad money aggregate M2. For the preferred relationship including euro area money market rate and euro area bond rate a dynamic equation is estimated. This dynamic equation is stable for the whole period. The change of the anchor curreny in the currency board and the accession to the European Union do not alter the relationship.      

A CLOSER LOOK AT LONG‐RUN U.S. MONEY DEMAND: LINEAR OR NONLINEAR ERROR‐CORRECTION WITH M0, M1, OR M2?

We study annual U.S. data from 1869 or 1900 to 1999. We find evidence for a well-specified and stable model of money demand with data from 1946 to 1999. We carry out diagnostic and stability tests, including linearity tests. A linear error-correction model with the monetary base performs better than a model with M1. A specification with M2 is not supported. We use real gross national product as the scale variable and a short-term interest rate as the opportunity cost measure. We estimate an income elasticity of 0.86 and an interest rate elasticity of −0.44 for the monetary base . ( JEL E41)