The Demand for Money: Theoretical and Empirical Approaches

Front Cover
Springer Science & Business Media, Jun 8, 2007 - Business & Economics - 382 pages
0 Reviews
Almost half a century has elapsed since the demand for money began to attract widespread attention from economists and econometricians, and it has been a topic of ongoing controversy and research ever since. Interest in the topic stemmed from three principal sources. Firstofall,therewasthematter oftheinternaldynamicsofmacr- conomics, to which Harry Johnson drew attention in his 1971 Ely Lecture on “The Keynesian Revolution and the Monetarist Counter- Revolution,” American Economic Review 61 (May 1971). The main lesson about money that had been drawn from the so-called “Key- sian Revolution” was — rightly or wrongly — that it didn’t matter all that much. The inherited wisdom that undergraduates absorbed in the 1950s was that macroeconomics was above all about the determination of income and employment, that the critical factors here were saving and investment decisions, and that monetary factors, to the extent that they mattered at all, only had an in?uence on these all important variables through a rather narrow range of market interest rates. C- ventional wisdom never goes unchallenged in economics, except where its creators manage to control access to graduate schools and the jo- nals,anditiswithnocynicalintentthatIcon?rmJohnson’ssuggestion that those of us who embarked on academic careers in the ’60s found in this wisdom a ready-made target.
 

What people are saying - Write a review

We haven't found any reviews in the usual places.

Contents

141 CrossCountry Data
186
143 CrossCountry Evidence
190
144 Robustness
195
145 Conclusion
196
Microfoundations and Monetary Aggregation
197
The Microeconomic Foundations of the Definition of Money
198
151 The SimpleSum Index
200
152 The User Cost of Money
201

23 The KeynesianCross Model
16
24 The ISLM Model
17
25 The Keynesian ADAS Model
21
26 Conclusion
23
Dynamic Monetary Macroeconomics
25
Models with Rational Expectations
27
31 The Cagan Model
28
32 Adaptive Expectations
29
33 Rational Expectations
30
331 Application to the Cagan Model
31
34 The Lucas Critique
33
35 Rules versus Discretion
38
351 Rules
39
352 Discretion
40
37 Inflation Mitigation
42
Neoclassical Growth Theory
44
411 Steady State ν τ 0
47
412 Steady State Growth ν 0 and τ 0
49
413 Steady State per Capita Growth ν 0 and τ 0
50
421 The Method of Lagrange Multipliers
52
422 The Method of Dynamic Programming
53
423 The Euler Equation
55
44 Conclusion
60
Monetary Growth Theory
63
51 The Tobin Model
64
52 The Sidrauski Model
68
53 A Variation of the Sidrauski Model
70
54 The New Empirics of Monetary Growth
72
55 Conclusion
73
The Welfare Cost of Inflation
75
62 The Consumer Surplus Approach
76
63 The Compensating Variation Approach
78
64 Empirical Evidence
82
65 Conclusion
84
Theoretical Approaches to the Demand for Money
86
The Classics Keynes and Friedman
89
71 The Equation of Exchange
90
73 The Quantity Theory Demand for Money
91
74 The Cambridge Cash Balance Equation
92
75 The Keynesian Approach
93
76 Friedmans Modern Quantity Theory
96
77 Conclusion
99
Transactions Theories of Money Demand
101
82 The ShoppingTime Model
104
83 CashinAdvance Models
107
84 Conclusion
111
Portfolio Theories of Money Demand
113
92 Money and Overlapping Generations
116
93 Conclusion
120
Empirical Approaches to the Demand for Money
122
Conventional Demand for Money Functions
125
101 The Basic Specification
126
1012 Scale Variables
128
1013 Opportunity Costs
131
103 Money Demand Dynamics
134
104 FirstDifference Specifications
136
105 Conclusion
138
Modeling Trends in the Variables of the Money Demand Function
139
111 Deterministic and Stochastic Trends
140
112 Testing for Unit Roots
142
1122 Augmented DickeyFuller ADF Tests
143
1123 Breaking Trend Functions
145
113 Testing for Stationarity
146
114 Fractional Integration
147
115 Testing for Nonlinearity and Chaos
148
116 Detecting Signatures of SelfOrganization
154
117 Conclusion
156
Cointegration and the Aggregate Demand for Money Function
157
121 Cointegration
158
123 Cointegration and Common Cycles
160
124 Cointegration and Codependent Cycles
161
125 Cointegration and Error Correction
162
126 Cointegration and Money Demand
163
127 Testing for Cointegration
165
1272 The Johansen ML Approach
167
128 A Bounds Testing Approach
170
129 Conclusion
173
Balanced Growth the Demand for Money and Monetary Aggregation
175
131 Theoretical Background
176
132 Univariate Tests for Unit Roots
177
133 Testing the c i y System
178
134 Testing the m p y R System
180
135 Testing the c i m p y R System
181
CrossCountry Evidence on the Demand for Money
185
153 Microeconomic Foundations
203
154 Aggregation Theory
205
155 Index Number Theory
207
156 Diewerts Link
209
157 Conclusion
211
The New Monetary Aggregates
213
161 The Neoclassical Monetary Problem
214
162 Understanding the Divisia Aggregates
215
163 Divisia Second Moments
217
164 Measurement Matters
218
165 The MQ and CE Indexes
219
166 Empirical Comparisons
221
167 Conclusion
230
Nominal Stylized Facts
231
171 The Hodrick and Prescott Filter
232
172 The Cyclical Behavior of Money
233
173 Prices Interest Rates and Velocity
236
174 Robustness
240
1742 The Christiano and Fitzerland Filter
241
175 Conclusion
242
Microfoundations and the Demand for Money
243
The Nonparametric Approach to Demand Analysis
244
181 The Idea of Revealed Preference
246
182 The Maximization Hypothesis
247
184 Direct Separability
248
185 Indirect Separability
251
186 Homothetic Separability
253
187 NONPAR Tests of Consumer Behavior
254
188 Conclusion
255
The Parametric Approach to the Demand for Monetary Assets
257
192 The Indirect Utility Approach
259
193 The Slutsky Conditions
262
1932 AddingUp Summability
264
1933 Symmetry of the Slutsky Matrix
265
1934 Negativity of the Own Substitution Effect
267
194 Conclusion
268
Locally Flexible Functional Forms and Demand Systems
269
201 Locally Flexible Forms
270
2012 The Basic Translog
271
2013 The Almost Ideal Demand System
272
202 Effectively Globally Regular Forms
273
2022 The NQ Reciprocal Indirect Utility Function
275
203 Imposing Local Curvature
276
2031 The Generalized Leontief and Local Curvature
277
2032 The Basic Translog and Local Curvature
279
2033 The Almost Ideal Demand System and Local Curvature
280
2034 The Minflex Laurent and Local Curvature
281
204 Conclusion
282
Globally Flexible Functional Forms and Demand Systems
285
211 The Fourier Model
286
212 The AIM Model
288
2121 The AIM1 Model
289
2122 The AIM2 Model
290
2123 The AIM3 Model
292
213 Computational Considerations
294
214 Imposing Curvature Restrictions
295
215 Conclusion
297
Microeconometrics and the Demand for Money
298
The Econometrics of Demand Systems
301
221 Dimension Reduction
302
222 Duality and Functional Structure
304
223 Stochastic Specification
305
224 Autoregressive Disturbances
307
225 Theoretical Regularity
309
226 Econometric Regularity
310
227 Expenditure and Price Elasticities
311
229 Conclusion
313
Applied Monetary Demand Analysis
314
231 The Monetary Problem
316
232 The Basic Translog and the Demand for Money
317
2321 Data and Econometric Issues
319
2323 Regularity Effects of Serial Correlation Correction
321
233 The AIM2 Model and the Demand for Money
322
2331 AIM2 Income and Price Elasticities
324
2332 AIM2 Elasticities of Substitution
325
234 Conclusion
329
Future Research Agenda
331
241 Outstanding Credit
332
244 Risk Matters
335
245 Conclusion
340
References
341
Author Index
366
Subject Index
371
Copyright

Other editions - View all

Common terms and phrases

References to this book

All Book Search results »

About the author (2007)

Apostolos Serletis is University Professor and Professor of Economics and Finance at the University of Calgary. Since receiving his Ph.D. from McMaster University in 1984, he has held visiting appointments at the University of Texas at Austin, the Athens University of Economics and Business, and the Research Department of the Federal Reserve Bank of St. Louis.

Professor Serletis’ teaching and research focus on monetary and financial economics, macroeconometrics, and nonlinear and complex dynamics. He is the author of eight books, including The Theory of Monetary Aggregation, co-edited with William A. Barnett (Elsevier 2000), Financial Markets and Institutions: First Canadian Edition, with Frederic S. Mishkin and Stanley G. Eakins (Addison Wesley 2004), Money and the Economy (World Scientific 2006), The Economics of Money, Banking, and Financial Markets: Third Canadian Edition, with Frederic S. Mishkin (Addison Wesley 2007), Functional Structure Inference, co-edited with William A. Barnett (Elsevier 2007), and Quantitative and Empirical Analysis of Energy Markets (World Scientific 2007).

In addition, he has published close to 150 articles in such journals as the Journal of Economic Literature, the Journal of Monetary Economics, the Journal of Money, Credit and Banking, the Journal of Econometrics, the Canadian Journal of Economics, the Journal of Economic Dynamics and Control, the Journal of Business and Economic Statistics, the Journal of Banking and Finance, the Journal of Applied Econometrics, and Macroeconomic Dynamics.

Professor Serletis is an Associate Editor of Macroeconomic Dynamics and a member of the editorial board at two academic journals, the Journal of Economic Asymmetries and the Journal of Economic Studies. He lives in Calgary, with his wife Aglaia.

Bibliographic information