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When Markets Fail: Asset Prices, Government Expenditures, and the Velocity of Money

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  • WARBURTON, Christopher E.S.

Abstract

This paper examines the contributions of financial and macroeconomic variables to the revitalisation of a depressed US economy. Using time series data from 1957 to 2011 and a binary logistic regression model, it finds that government consumption expenditure and gross investment, real personal consumption expenditure, and the velocity of money provide robust possibilities for improving economic growth after the failure of financial and real markets. It concludes that policies that are oriented towards the revitalisation of economic growth should seriously consider the speed at which money circulates in contradistinction to the money stock and asset prices or the wealth effect.

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Bibliographic Info

Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 13 (2013)
Issue (Month): 2 ()
Pages: 73-92

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Handle: RePEc:eaa:aeinde:v:13:y:2013:i:2_6

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Related research

Keywords: Asset Prices; Liquidity Trap; Logit; Market Failure; Velocity of Money.;

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  1. Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
  2. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," Working Paper Series 1090, European Central Bank.
  3. John A. Tatom, 1983. "Was the 1982 velocity decline unusual?," Review, Federal Reserve Bank of St. Louis, issue Aug, pages 5-15.
  4. repec:fth:calaec:13-89 is not listed on IDEAS
  5. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-36, June.
  6. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
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  9. Reinert,Kenneth A., 2012. "An Introduction to International Economics," Cambridge Books, Cambridge University Press, number 9781107003576, December.
  10. Joseph Tracy & Henry Schneider & Sewin Chan, 1999. "Are stocks overtaking real estate in household portfolios?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Apr).
  11. Robert L. Hetzel, 2009. "Monetary policy in the 2008-2009 recession," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 201-233.
  12. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
  13. LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December.
  14. Bridges, Jonathan & Rossiter, Neil & Thomas, Ryland, 2011. "Understanding the recent weakness in broad money growth," Bank of England Quarterly Bulletin, Bank of England, vol. 51(1), pages 22-35.
  15. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
  16. Elroy Dimson & Massoud Mussavian, 1998. "A brief history of market efficiency," European Financial Management, European Financial Management Association, vol. 4(1), pages 91-103.
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