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U.S. Domestic Money, Inflation and Output

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  • Yunus Aksoy

    (Department of Economics, Mathematics & Statistics, Birkbeck)

  • Tomasz Piskorski

Abstract

Recent empirical research documents that the strong short-term relationship between U.S. monetary aggregates on one side and inflation and real output on the other has mostly disappeared since the early 1980s. Using the direct estimate of flows of USD abroad we find that domestic money (currency corrected for the foreign holdings of dollars) contains valuable information about future movements of U.S. inflation and real output. Statistical evidence suggests that the Friedman-Schwartz stylized facts can be reestablished once the focus of analysis is back on the correct measure of domestic monetary aggregates.

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File URL: http://www.ems.bbk.ac.uk/research/wp/PDF/BWPEF0506.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 0506.

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Date of creation: Feb 2005
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Handle: RePEc:bbk:bbkefp:0506

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Keywords: foreign holdings; domestic money; monetary aggregates; information value;

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References

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  16. Michael J. Lambert & Kristin D. Stanton, 2001. "Opportunities and challenges of the U.S. dollar as an increasingly global currency: a Federal Reserve perspective," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Sep, pages 567-575.
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Citations

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Cited by:
  1. Jiranyakul, Komain, 2009. "Relationship among Money, Prices and Aggregate Output in Thailand," MPRA Paper 46963, University Library of Munich, Germany.
  2. Calza Alessandro & Zaghini Andrea, 2011. "Welfare Costs of Inflation and the Circulation of U.S. Currency Abroad," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-21, May.
  3. Yunus Aksoy & Miguel León-Ledesma, 2004. "Interest Rates and Output in the Long-run," Studies in Economics 0409, Department of Economics, University of Kent.
  4. Bartzsch, Nikolaus & Rösl, Gerhard & Seitz, Franz, 2013. "Estimating the foreign circulation of banknotes," Economics Letters, Elsevier, vol. 119(2), pages 165-167.
  5. Aksoy, Yunus & Piskorski, Tomasz, 2005. "US domestic currency in forecast error variance decompositions of inflation and output," Economics Letters, Elsevier, vol. 86(2), pages 265-271, February.
  6. Feige, Edgar L., 2011. "New estimates of U.S. currency abroad, the domestic money supply and the unreported Economy," MPRA Paper 34778, University Library of Munich, Germany.
  7. Michael Graff, 2008. "The Quantity Theory of Money in Historical Perspective," KOF Working papers 08-196, KOF Swiss Economic Institute, ETH Zurich.
  8. Bartzsch, Nikolaus & Rösl, Gerhard & Seitz, Franz, 2013. "Currency movements within and outside a currency union: The case of Germany and the euro area," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 393-401.
  9. Fischer, Björn & Köhler, Petra & Seitz, Franz, 2004. "The demand for euro area currencies: past, present and future," Working Paper Series 0330, European Central Bank.
  10. El-Shagi, Makram & Giesen, Sebastian, 2013. "Money and inflation: Consequences of the recent monetary policy," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 520-537.
  11. Carlos Esteban Posada & Andrés Felipe García, . "¿No importa la cantidad de dinero?: "Inflation Targeting" y la teoría cuantitativa," Borradores de Economia 403, Banco de la Republica de Colombia.
  12. Tang, Maggie May-Jean & Puah, Chin-Hong & Awang Marikan, Dayang-Affizzah, 2013. "Empirical Evidence on the Long-Run Neutrality Hypothesis Using Divisia Money," MPRA Paper 50020, University Library of Munich, Germany.

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