REAL VERSUS NOMINAL SPECIFICATION OF THE DEMAND FOR MONEY FUNCTION

This paper re-examines the issue of real versus nominal specification of the money demand function and presents evidence in favor of the nominal specification. A series of experiments with U.S. quarterly data show that the money demand function specified in nominal terms is more stable and generates more accurate forecasts than that specified in real terms. "The case of the missing money" also is discussed.     

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.     

Nominal and Real Disturbances and Money Demand in Chinese Hyperinflation

This article reexamines the dynamics of hyperinflation by allowing variability in the relative price of capital goods in units of consumption goods that reflects interactions between the real and monetary sectors. The theory generates empirically testable implications that suggest expanding the standard Caganian money demand function to include both anticipated inflation and relative price effects in a nonlinear fashion. Employing data from the post–WW II Chinese hyperinflationary episode, the empirical findings suggest that conventional econometric investigations of money demand during hyperinflation overlook important nonlinear interactions between real and monetary activities and, hence, underestimate the welfare costs of hyperinflation.     

FACTOR DEMAND UNDER CONDITIONS OF PRODUCT DEMAND and SUPPLY UNCERTAINTY

The paper develops a theory of factor demand under uncertainty, that encompasses neo-classical factor demand and Keynesian effective factor demand as special cases. The model allows factor demand and output to move positively with product demand, even with a constant product price. This, in turn, permits real wages to move pro-cyclically in response to product demand shocks. In addition the model provides a new perspective on the "adding-up" problem (which posits that total factor payments exceed output if increasing returns to scale exist), and generates positive uncertainty profits that are similar in spirit to those of Frank Knight.     

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.     

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)     

The value of planned death

In this paper we propose a theoretical model of evaluating the economic costs and benefits of physician assisted suicide (euthanasia). The contemplation of euthanasia is modeled akin to the valuation of a real option. Our modeling of the decision shows that euthanasia is optimal when certain conditions are satisfied. The findings in this paper suggest that if more money is spent on medical research (such as pain management), the demand for Euthanasia could be reduced.     

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).     

COULD STABLE MONEY HAVE AVERTED THE GREAT CONTRACTION?

We test the hypothesis that the Great Contraction would have been attenuated had the Federal Reserve not allowed the money stock to decline. We simulate a model that estimates separate relations for output and the price level and assumes that output and price dynamics are not especially sensitive to policy changes. The simulations include a strong and a weak form of Friedman's constant money growth rule. The results support the hypothesis that the Great Contraction would have been mitigated and shortened had the Federal Reserve followed a constant money growth rule.     

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.     

Information technologies and the

conclusion The evolution in the role of middlemen has many important implications at the macro-economic level as well. In many markets, the negative employment effects of labor-saving technologies are offset by increases in the demand for labor as transaction costs fall and additional labor is needed to produce more goods and services. As discussed above, middlemen operate successfully in markets when private transactions are costly and inefficiencies exist. Many traditional aspects of this role are being replaced by information technologies. Generally, information technologies are a close substitute for match-making services, but are less suited for reducing privately held asymmetric information. The reduction in transaction costs and improved efficiencies in match mak-ing provided by information technologies increases the demand for expert services which further increases the returns to education and widens the earnings gap. The widening should be greatest in industries that concentrate on match-making services such as real estate, however a widening is likely to be present in most sectors. Middle-men with expertise beyond match making will remain viable, while those lacking value-adding expertise will be rapidly marginalized.     

POLITICAL RISK, NATIONAL DEFENSE AND THE DOLLAR

The Federal Reserve Board's trade-weighted real exchange rate index is highly correlated with the U.S. defense budget share of GNP. This paper provides evidence that the correlation is not spurious. Political risk associated with holding wealth in the United States varies inversely with U.S. military security and, due to the Soviet military threat to the West, is a major argument in foreign asset demand functions.     

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.      

UNCERTAINTY IN THE DEMAND FOR MONEY DURING HYPERINFLATION

Much recent empirical work on hyperinflation has centered on the direct and indirect effects of uncertainty on the demand for money. We test the hypothesis, originally put forward by Klein, that uncertainty positively affects the demand for real balances. A variant of Cagan's demand for money function is utilized and operational measures of uncertainty are derived by fitting autoregressive integrated moving average models to the inflation series for each of three hyperinflation nations. We find that the most reasonable measures of variation do not significantly enter the money demand function for any of the three hyperinflations studied.     

CROSS-COUNTRY ESTIMATES OF THE DEMAND FOR MONEY AND ITS COMPONENTS

The demand for money aggregates (M1, M2) and their components (currency, demand deposits, and time deposits) are estimated using a sample of 103 countries at two time periods. Money demand is found to be affected by age, literacy, industrial development, and political structure, as well as income and inflation. This expanded demand function helps to explain the considerable changes in money demand that have occurred over long periods and the large variation in money demand found across countries. The knowledge thus gained is useful for understanding differences in monetary and taxation policies across countries.     

BUSINESS CYCLE ASYMMETRY: A DEEPER LOOK

This paper distinguishes two types of asymmetry in business cycles: deepness and steepness. Deepness is defined as the characteristic that troughs are further below trend than peaks are above. Most previous research has focused exclusively on steepness, which refers to cycles in which contractions are steeper than expansions. A test for deepness is proposed and applied to U.S. post-war quarterly unemployment, real GNP, and industrial production. Evidence of deepness is found for unemployment and industrial production, while the evidence for real GNP is weaker. Previous evidence of steepness in unemployment is confirmed.     

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)     

Transition from playing with simulated gambling games to gambling with real money: a longitudinal study in adolescence

Digital technology advances have supported an expansion of gambling activities, which is notable via the advent of simulated gambling games. Simulated gambling reproduces ‘real’ gambling activities, which enables the users to gamble without investing money. According to research evidence, a certain number of adolescents are playing with these games, but until now little has been known about how they could facilitate the migration to gambling with real money. Using a longitudinal design with a one-year interval period, the goal of this study was to assess the potential transition between playing with simulated gambling and the initiation to gambling with real money. The final sample was constituted of 1220 adolescents (age range = 14 to 18 y.o.) who had never played with real money at the first measurement time. At the second measurement time, 28.8% of the participants had gambled for the first time with real money. Logistic regressions revealed that the predictive association between simulated gambling and gambling with real money only holds for adolescents who transitioned from simulated poker to poker with real money. These findings highlight the need for regulation and monitoring on Internet gambling poker sites, as well as further research to assess the mechanisms at work.     

THE TIMING OF MARKETS AND MONETARY TRANSFERS IN CASH-IN-ADVANCE ECONOMIES

In cash-in-advance models, do the timing of markets and the timing of the monetary transfer affect equilibrium money demand? The timing of markets generates different individual money demands; however, under the common assumption that agents are identical, these differences do not affect the behavior of equilibrium real balances. In contrast, the timing of the monetary transfer has important implications for agent's information sets; these implications can influence the equilibrium characteristics of real balances.     

THE VARIABLE RATE-OF-GROWTH EFFECT IN THE LIFE-CYCLE SAVING MODEL

The rate of growth in real GNP g affects the aggregate saving rate positively in life-cycle saving models. This rate of growth effect is invariably estimated as the coefficient of g in the saving function. We show that other determinants of the saving rate influence the rate of growth effect. In other words, the rate of growth effect is not constant. Specifically, the real rate of return on financial assets and the population dependency ratio determine the timing of saving over the life cycle and, hence, alter the rate of growth effect. The dependency ratio also has an effect on the saving rate which is independent of g because it, together with the foreign saving rate, determines the level of saving over the life cycle.