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Toward a Bias Corrected Currency Equivalent Index

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Author Info
William Barnett (Department of Economics, The University of Kansas)
John Keating (Department of Economics, The University of Kansas)
Logan Kelly (School of Business and Economics, College of Charleston)

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Abstract

Measuring the economic stock of money, defined to be the present value of current and future monetary service flows, is a difficult asset pricing problem, because most monetary assets yield interest. Thus, an interest yielding monetary asset is a joint product: a durable good providing a monetary service flow and a financial asset yielding a return. The currency equilivant index provides an elegant solution, but it does so by making strong assumptions about expectations of future monetary service flows. These assumptions cause the currency equivalent index to exhibit significant downward bias. In this paper, we propose an extension to the currency equivalent index that will correct for a significant amount of this bias.

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Publisher Info
Paper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 200707.

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Length: 8 pages
Date of creation: Nov 2007
Date of revision: Nov 2007
Handle: RePEc:kan:wpaper:200707

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Related research
Keywords: Currency Equilivant Index; Monetary Aggregation; Money Stock;

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Find related papers by JEL classification:
E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other

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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. William Barnett, 2005. "Monetary Aggregation," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200510, University of Kansas, Department of Economics, revised Mar 2005. [Downloadable!]
    Other versions:
  2. William Barnett & Unja Chae & John Keating, 2005. "The Discounted Economic Stock of Money with VAR Forecasting," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200515, University of Kansas, Department of Economics, revised Aug 2005. [Downloadable!]
    Other versions:
  3. repec:cup:macdyn:v:1:y:1997:i:2:p:485-512 is not listed on IDEAS
  4. Barnett, William A. & Liu, Yi & Jensen, Mark, 1997. "Capm Risk Adjustment For Exact Aggregation Over Financial Assets," Macroeconomic Dynamics, Cambridge University Press, vol. 1(02), pages 485-512, June. [Downloadable!]
  5. Michael T. Belongia, 1989. "Monetary policy on the 75th anniversary of the Federal Reserve system : proceedings of the fourteenth annual Economic Policy Conference, held on October 19-20, 1989," Proceedings, Federal Reserve Bank of St. Louis.
  6. Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, vol. 1(2), pages 145-149. [Downloadable!] (restricted)
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