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Real Money Balances and the Timing of Consumption: An Empirical Investigation

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  • Koenig, Evan F

Abstract

This paper examines the correlation between changes in consumer spending on nondurables and services, and levels or changes in a variety of other variables that might be expected to enter directly as arguments of the household utility function or to serve as measures of household liquidity. Empirical results strongly suggest that an increase in real money balances raises the marginal utility of consumption. Once the influence of real balances is accounted for, there is little evidence that other variables have a direct impact on the timing of consumption. Copyright 1990, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 105 (1990)
Issue (Month): 2 (May)
Pages: 399-425

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Handle: RePEc:tpr:qjecon:v:105:y:1990:i:2:p:399-425

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  1. Mankiw, N Gregory & Summers, Lawrence H, 1986. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 415-29, November.
  2. Koenig, Evan F, 1987. "The Short-run 'Tobin Effect' in a Monetary Optimizing Model," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 43-53, January.
  3. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-81, March.
  4. Marjorie Flavin, 1985. "Excess Sensitivity of Consumption to Current Income: Liquidity Constraints or Myopia?," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 117-36, February.
  5. Friedman, Benjamin M, 1988. "Monetary Policy without Quantity Variables," American Economic Review, American Economic Association, vol. 78(2), pages 440-45, May.
  6. Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, vol. 7(4), pages 307-311.
  7. Mankiw, N Gregory & Rotemberg, Julio J & Summers, Lawrence H, 1985. "Intertemporal Substitution in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 225-51, February.
  8. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March.
  9. Bernanke, Ben, 1985. "Adjustment costs, durables, and aggregate consumption," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 41-68, January.
  10. Evan F. Koenig, 1989. "Real money balances and the timing of consumption: an empirical investigation," Research Paper 8906, Federal Reserve Bank of Dallas.
  11. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  12. Koenig, Evan F, 1989. "Investment and the Nominal Interest Rate: The Variable Velocity Case," Economic Inquiry, Western Economic Association International, vol. 27(2), pages 325-44, April.
  13. Rasche, Robert H., 1987. "M1 -- Velocity and money-demand functions: Do stable relationships exist?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 27(1), pages 9-88, January.
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  1. Measurement Before Theory
    by Josh in The everyday economist on 2009-09-29 04:31:57
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Cited by:
  1. Fujiwara, Ippei, 2006. "Evaluating monetary policy when nominal interest rates are almost zero," Journal of the Japanese and International Economies, Elsevier, vol. 20(3), pages 434-453, September.
  2. Claus Brand & Hans-Eggert Reimers & Franz Seitz, 2003. "Narrow Money and the Business Cycle: Theoretical aspects and euro area evdence," Macroeconomics 0303012, EconWPA.
  3. Nelson, Edward, 2002. "Direct effects of base money on aggregate demand: theory and evidence," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 687-708, May.
  4. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc.
  5. Takeshi Kimura & Hiroshi Kobayashi & Jun Muranaga & Hiroshi Ugai, 2003. "The effect of the increase in the monetary base of Japan's economy at zero interest rates: an empirical analysis," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 276-312 Bank for International Settlements.
  6. Reis, Ricardo, 2007. "The analytics of monetary non-neutrality in the Sidrauski model," Economics Letters, Elsevier, vol. 94(1), pages 129-135, January.
  7. Warnock, Francis E., 2003. "Exchange rate dynamics and the welfare effects of monetary policy in a two-country model with home-product bias," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 343-363, June.
  8. Evan F. Koenig, 1989. "Real money balances and the timing of consumption: an empirical investigation," Research Paper 8906, Federal Reserve Bank of Dallas.
  9. Luca Sessa, 2012. "Economic (in)stability under monetary targeting," Temi di discussione (Economic working papers) 858, Bank of Italy, Economic Research and International Relations Area.
  10. F H Capie & Dimitrios P Tsomocos & Geoffrey E Wood, 2003. "E-barter versus fiat money: will central banks survive?," Bank of England working papers 197, Bank of England.
  11. Verónica Mies M. & Felipe Morandé L. & Matías Tapia G., 2002. "Monetary Policy and Transmission Mechanisms: New Elements for an old Debate," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 5(3), pages 29-66, December.
  12. Francis E. Warnock, 1998. "Idiosyncratic tastes in a two-country optimizing model: implications ; of a standard presumption," International Finance Discussion Papers 631, Board of Governors of the Federal Reserve System (U.S.).
  13. Pojanart Sunirand, 2003. "The role of money in the transmission mechanism of monetary policy: evidence from Thailand," LSE Research Online Documents on Economics 24850, London School of Economics and Political Science, LSE Library.
  14. Cheng K. Wu, 1997. "New Result in Theory of Consumption: Changes in Savings and Income Growth," Macroeconomics 9706007, EconWPA.
  15. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.
  16. Francis E. Warnock, 2000. "Exchange rate dynamics and the welfare effects of monetary policy in a two-country model with home-product bias," International Finance Discussion Papers 667, Board of Governors of the Federal Reserve System (U.S.).
  17. Evan F. Koenig, 1989. "Are the permanent-income model of consumption and the accelerator model of investment compatible?," Research Paper 8915, Federal Reserve Bank of Dallas.
  18. Evan F. Koenig, 1990. "Is increased price flexibility stabilizing? The role of the permanent income hypothesis," Research Paper 9011, Federal Reserve Bank of Dallas.
  19. Norrbin, Stefan, 2001. "What Have We Learned from Empirical Tests of the Monetary Transmission Effect," Working Paper Series 121, Sveriges Riksbank (Central Bank of Sweden).
  20. Verónica Mies & Felipe Morandé & Matías Tapia, 2002. "Política Monetaria y Mecanismos de Transmisión: Nuevos Elementos para una Vieja Discusión," Working Papers Central Bank of Chile 181, Central Bank of Chile.

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