RECENT EMPIRICAL STUDIES of the demand for money have - applied distributed lag models to specifications of monetary behavior. One such study by Joseph Adekunle 1 focused on the manner in which adaptive expectations affect portfolio behavior. The present paper is a further investigation into the adaptive expectation model of the demand for money.
MARIO I. BLEJER, MARIO I. KHAN, and PAUL R. MASSON
Staff Papers has, since its inception in 1950, been an important vehicle for the dissemination of research done by staff of the IMF. The paper discusses three areas in which articles published in Staff Papers up until the 1970s made major contributions to the literature in international economics. The areas covered are: first, the absorption approach and the monetary theory of the balance of payments; second, the Mundell-Fleming model; and third, foreign trade modeling. The nature of the contributions and their relationship with further developments in the respective fields are detailed.
The note delves on the U.S. housing market outlook, the potential benefits of mitigating distressed sales household deleveraging, and the recovery. Policies to facilitate labor market adjustment to reduce the large employment volatility without affecting efficient labor allocation could prevent problems. U.S. firms are hoarding money but it is likely to be spent to boost firms’ capital expenditure, rather than kept as precautionary balances. The note discusses commodity price shocks affecting Treasury inflation protected securities (TIPS), budget institutions for federal fiscal consolidation, and mortgage delinquencies in the United States.
This paper discusses the implications for credit policy of changes in the income velocity of money; it neglects other policy elements of financial programs unless they have a direct bearing on velocity changes. Control over credit expansion by domestic banks is used to influence expenditure decisions, since the availability of credit has a strong impact on expenditures on domestic and foreign goods and services and, possibly, on net capital flows and, therefore, on the balance of payments. The paper also describes some relationships between monetary and national income accounts in order to identify the changes in velocity that must be considered in determining credit policies. The relevance of incorporating lags into the demand for money function has been mentioned earlier. Lags in the formation of expectations within a country usually can be expected to change only slowly over time and, therefore, can be assumed constant in the estimation of the demand for money function.
Mr. Guy M Meredith, Mr. Bankim Chadha, and Mr. Paul R Masson
This paper focuses on the output costs of disinflation. A model of inflation with both forward and backward elements seems to characterize reality. Such an inflation model is estimated using data for industrial countries, and the output costs of a disinflation path are calculated, first analytically in a simple theoretical model, then by simulation of a global, multi-region empirical model. The credibility of a preannounced path for money consistent with the lowest output loss is considered. An alternative, more credible policy may be to announce an exchange rate peg to a low inflation currency.
This paper estimates forecasting models using annual data for the income velocity of money in the G-7 countries. The predictions are conditional upon the realized value of the long-term domestic government bond rate. Such conditional forecasts did not deteriorate over the period 1980-1988 as compared with the earlier postwar period. Velocity of M1 is found to be very interest-elastic in almost all countries; velocity of M2 less so. The specifications (based on Kalman filters and smoothers) point to a non-constant (stochastic) trend in velocity, hence questioning the assumptions required for the cointegration techniques used in other research on the demand for money.
The pace of financial market innovation in Canada quickened in the past decade or so with implications for the empirical relationships between the various monetary aggregates and other economic variables. Against this background, this paper, using an error correction formulation, presents new estimates of the demand functions for real M1, M2, and M2+ balances and concludes that while some reasonable well-behaved money demand functions exist, the interpretation of some of the variables, notably the Canadian Savings Bond variable, is open to question. The total interest elasticities of demand (i.e., including the own rate elasticity) are close to zero raising monetary management questions.
Is there a stable aggregate money demand relationship for Europe? If so, why, and if not, why not? These questions are important for the implementation of policy by a European central bank, as well as for the appropriate speed of transition to EMU. This paper addresses them in a multi-country empirical study of money demand for the G-7 countries during the period since 1973. It looks for evidence of currency substitution and tests the restrictions implied by cross-border aggregation within Europe.
Forecasting models are estimated using annual data for the income velocity of money in seven major industrial countries. The predictions are conditional on the realized value of the long-term domestic government bond rate. These forecasts did not deteriorate over the period 1980-88, compared with the earlier postwar period. Velocity of M1 is found to be very interest elastic in almost all countries; velocity of M2, less so. The specifications (based on Kalman filters) point to a nonconstant trend in velocity, raising questions about the assumptions required for the cointegration techniques used in other research on money demand.[JEL F31, E52, E41)