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Real money balances and the timing of consumption: an empirical investigation

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  • Evan F. Koenig

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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Paper provided by Federal Reserve Bank of Dallas in its series Research Paper with number 8906.

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Date of creation: 1989
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Handle: RePEc:fip:feddrp:8906

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Keywords: Consumption (Economics);

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  1. Evan F. Koenig, 1988. "Investment and the nominal interest rate: the variable velocity case," Research Paper, Federal Reserve Bank of Dallas 8805, Federal Reserve Bank of Dallas.
  2. 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.
  3. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 117-27, March.
  4. Ben S. Bernanke, 1982. "Adjustment Costs, Durables, and Aggregate Consumption," NBER Working Papers 1038, National Bureau of Economic Research, Inc.
  5. N. Gregory Mankiw & Julio J. Rotemberg & Lawrence H. Summers, 1982. "Intertemporal Substitution in Macroeconomics," NBER Working Papers 0898, National Bureau of Economic Research, Inc.
  6. Mankiw, N Gregory & Summers, Lawrence H, 1986. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 18(4), pages 415-29, November.
  7. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
  8. Evan F. Koenig, 1989. "Real money balances and the timing of consumption: an empirical investigation," Research Paper, Federal Reserve Bank of Dallas 8906, Federal Reserve Bank of Dallas.
  9. Friedman, Benjamin M, 1988. "Monetary Policy without Quantity Variables," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 440-45, May.
  10. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(6), pages 971-87, December.
  11. Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, Elsevier, vol. 7(4), pages 307-311.
  12. Rasche, Robert H., 1987. "M1 -- Velocity and money-demand functions: Do stable relationships exist?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 27(1), pages 9-88, January.
  13. Koenig, Evan F, 1987. "The Short-run 'Tobin Effect' in a Monetary Optimizing Model," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 25(1), pages 43-53, January.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Measurement Before Theory
    by Josh in The everyday economist on 2009-09-29 04:31:57
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Cited by:
  1. Nelson, Edward, 2001. "Direct Effects of Base Money on Aggregate Demand: Theory and Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2666, C.E.P.R. Discussion Papers.
  2. Ippei Fujiwara, 2004. "Evaluating Monetary Policy When Nominal Interest Rates Are Almost Zero," Econometric Society 2004 Far Eastern Meetings, Econometric Society 620, Econometric Society.
  3. Claus Brand & Hans-Eggert Reimers & Franz Seitz, 2003. "Narrow Money and the Business Cycle: Theoretical aspects and euro area evdence," Macroeconomics, EconWPA 0303012, EconWPA.
  4. Pojanart Sunirand, 2003. "The role of money in the transmission mechanism of monetary policy: evidence from Thailand," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 24850, London School of Economics and Political Science, LSE Library.
  5. 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.
  6. 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.
  7. 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.
  8. Evan F. Koenig, 1990. "Is increased price flexibility stabilizing? The role of the permanent income hypothesis," Research Paper, Federal Reserve Bank of Dallas 9011, Federal Reserve Bank of Dallas.
  9. Koenig, Evan F, 1990. "Real Money Balances and the Timing of Consumption: An Empirical Investigation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 399-425, May.
  10. Cheng K. Wu, 1997. "New Result in Theory of Consumption: Changes in Savings and Income Growth," Macroeconomics, EconWPA 9706007, EconWPA.
  11. Evan F. Koenig, 1989. "Are the permanent-income model of consumption and the accelerator model of investment compatible?," Research Paper, Federal Reserve Bank of Dallas 8915, Federal Reserve Bank of Dallas.
  12. 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).
  13. 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.
  14. Luca Sessa, 2012. "Economic (in)stability under monetary targeting," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 858, Bank of Italy, Economic Research and International Relations Area.
  15. Reis, Ricardo, 2007. "The analytics of monetary non-neutrality in the Sidrauski model," Economics Letters, Elsevier, Elsevier, vol. 94(1), pages 129-135, January.
  16. Francis E. Warnock, 1998. "Idiosyncratic tastes in a two-country optimizing model: implications ; of a standard presumption," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 631, Board of Governors of the Federal Reserve System (U.S.).
  17. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, Elsevier, vol. 56(4), pages 247-272.
  18. 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, Elsevier, vol. 22(3), pages 343-363, June.
  19. 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, Board of Governors of the Federal Reserve System (U.S.) 667, Board of Governors of the Federal Reserve System (U.S.).
  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, Central Bank of Chile 181, Central Bank of Chile.

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