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Money, Output, and Prices: Evidence from a New Monetary Aggregate

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Author Info
Rotemberg, Julio J
Driscoll, John C
Poterba, James M

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Abstract

This paper derives a new utility-based monetary aggregate, the currency-equivalent aggregate. It equals the stock of currency that would be required for households to obtain the liquidity services that they get from their entire collection of monetary assets. This aggregate is derived from preferences assuming that these satisfy a separability assumption in addition to satisfying the requirements for Divisia aggregation. The resulting aggregate remains valid when asset characteristics change and equals the sum of individuals' currency-equivalent holdings. It also predicts output movements better than simple-sum aggregates such as M1 and M2.

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Publisher Info
Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 13 (1995)
Issue (Month): 1 (January)
Pages: 67-83
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Handle: RePEc:bes:jnlbes:v:13:y:1995:i:1:p:67-83

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-80, June. [Downloadable!] (restricted)
  2. Kormendi, Roger C & Meguire, Philip G, 1984. "Cross-Regime Evidence of Macroeconomic Rationality," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 875-908, October. [Downloadable!] (restricted)
  3. Lucas, Robert E, Jr, 1980. "Two Illustrations of the Quantity Theory of Money," American Economic Review, American Economic Association, vol. 70(5), pages 1005-14, December. [Downloadable!] (restricted)
  4. Ben S. Bernanke, 1990. "On the predictive power of interest rates and interest rate spreads," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 51-68.
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  5. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February. [Downloadable!] (restricted)
  6. Barnett, William A., 1980. "Economic monetary aggregates an application of index number and aggregation theory," Journal of Econometrics, Elsevier, vol. 14(1), pages 11-48, September. [Downloadable!] (restricted)
  7. Rotemberg, Julio J, 1984. "A Monetary Equilibrium Model with Transactions Costs," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 40-58, February. [Downloadable!] (restricted)
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  8. Serletis, Apostolos, 1988. "The Empirical Relationship between Money, Prices, and Income Revisite d," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 351-58, July.
  9. McCallum, Bennett T., 1984. "On low-frequency estimates of long-run relationships in macroeconomics," Journal of Monetary Economics, Elsevier, vol. 14(1), pages 3-14, July. [Downloadable!] (restricted)
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  10. Barnett, William A & Offenbacher, Edward K & Spindt, Paul A, 1984. "The New Divisia Monetary Aggregates," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1049-85, December. [Downloadable!] (restricted)
  11. Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 73(5), pages 871-80, December. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David Longworth, 2003. "Money in the Bank (of Canada)," Technical Reports 93, Bank of Canada. [Downloadable!]
  2. Michael T. Belongia & Peter N. Ireland, 2002. "The Own-Price of Money and a New Channel of Monetary Transmission," NBER Working Papers 9341, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Paul D. Gilbert & Lise Pichette, 2003. "Dynamic Factor Analysis for Measuring Money," Working Papers 03-21, Bank of Canada. [Downloadable!]
  4. Robert G. King & Mark W. Watson, 1997. "Testing long-run neutrality," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 69-101. [Downloadable!]
    Other versions:
  5. William Barnett & Unja Chae & John Keating, 2005. "The Discounted Economic Stock of Money with VAR Forecasting," Macroeconomics 0508021, EconWPA. [Downloadable!]
    Other versions:
  6. William Barnett & Unja Chae & John Keating, 2005. "Forecast Design in Monetary Capital Stock Measurement," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200516, University of Kansas, Department of Economics, revised Aug 2005. [Downloadable!]
    Other versions:
  7. William A. Barnett, 1996. "Which Road Leads to Stable Money Demand?," Macroeconomics 9611001, EconWPA. [Downloadable!]
    Other versions:
  8. Julio J. Rotemberg, 1994. "Prices, Output and Hours: An Empirical Analysis Based on a Sticky Price Model," NBER Working Papers 4948, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Wesche, Katrin, 1996. "Aggregating Money Demand in Europe with a Divisia Index," Discussion Paper Serie B 392, University of Bonn, Germany. [Downloadable!]
  10. William A. Barnett & Milka Kirova & Meenakshi Pasupathy, 1996. "Technology Modeling: Curvature is not Sufficient for Regularity," Econometrics 9602002, EconWPA, revised 24 Jun 1999. [Downloadable!]
  11. Livio Stracca, 2001. "Does liquidity matter? Properties of the synthetic divisia monetary aggregate in the Euro area," Working Paper Series 079, European Central Bank. [Downloadable!]
  12. James H. Stock & Martin Feldstein, 1994. "Measuring Money Growth When Financial Markets Are Changing," NBER Working Papers 4888, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. William A. Barnett & Yi Liu, 1996. "Beyond the Risk Neutral Utility Function," Macroeconomics 9602001, EconWPA. [Downloadable!]
  14. Richard G. Anderson & Barry Jones & Travis Nesmith, 1997. "Special report: The monetary services index project of the Federal Reserve Bank of St. Louis: introduction to the St. Louis monetary services index project," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 25-30. [Downloadable!]
  15. Frank Browne & Gabriel Fagan & Jerome Henry, 2005. "Money Demand in EU Countries: A Survey," Macroeconomics 0503004, EconWPA. [Downloadable!]
    Other versions:
  16. Owen Lamont, 1995. "Do "Shortages" Cause Inflation?," NBER Working Papers 5402, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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