Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Barnett Critique After Three Decades: A New Keynesian Analysis

Contents:

Author Info

  • Michael T. Belongia
  • Peter N. Ireland

Abstract

This paper extends a New Keynesian model to include roles for currency and deposits as competing sources of liquidity services demanded by households. It shows that, both qualitatively and quantitatively, the Barnett critique applies: While a Divisia aggregate of monetary services tracks the true monetary aggregate almost perfectly, a simple-sum measure often behaves quite differently. The model also shows that movements in both quantity and price indices for monetary services correlate strongly with movements in output following a variety of shocks. Finally, the analysis characterizes the optimal monetary policy response to disturbances that originate in the financial sector.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w17885.pdf
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17885.

as in new window
Length:
Date of creation: Mar 2012
Date of revision:
Publication status: published as “The Barnett Critique After Three Decades: A New Keynesian Analysis” (co-authored with Michael T. Belongia), Journal of Econometrics, forthcoming.
Handle: RePEc:nbr:nberwo:17885

Note: ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Belongia, Michael T. & Ireland, Peter N., 2006. "The Own-Price of Money and the Channels of Monetary Transmission," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 38(2), pages 429-445, March.
  2. James Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers, Federal Reserve Bank of St. Louis 2000-001, Federal Reserve Bank of St. Louis.
  3. Ben S. Bernanke & Alan S. Blinder, 1988. "Credit, Money, and Aggregate Demand," NBER Working Papers 2534, National Bureau of Economic Research, Inc.
  4. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  5. Rakesh K. Bissoondeeal & Barry E. Jones & Jane M. Binner & Andrew W. Mullineux, 2010. "Household-Sector Money Demand For The Uk," Manchester School, University of Manchester, University of Manchester, vol. 78(s1), pages 90-113, 09.
  6. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2139, C.E.P.R. Discussion Papers.
  7. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  8. William A. Barnett & Marcelle Chauvet, 2010. "How Better Monetary Statistics Could Have Signaled the Financial Crisis," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS, University of Kansas, Department of Economics 201005, University of Kansas, Department of Economics, revised Aug 2010.
  9. 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.
  10. Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(2), pages 197-216, May.
  11. Bennett T. McCallum, 2008. "Inflation Determination with Taylor Rules: Is New Keynesian Analysis Critically Flawed?," NBER Working Papers 14534, National Bureau of Economic Research, Inc.
  12. Nelson, Edward, 2003. "The future of monetary aggregates in monetary policy analysis," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(5), pages 1029-1059, July.
  13. Peter N. Ireland, 2004. "Technology Shocks in the New Keynesian Model," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 923-936, November.
  14. Marvin Goodfriend & Bennett T. McCallum, 2007. "Banking and interest rates in monetary policy analysis: a quantitative exploration," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  15. Livio Stracca, 2004. "Does Liquidity Matter? Properties of a Divisia Monetary Aggregate in the Euro Area," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 66(3), pages 309-331, 07.
  16. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(3), pages 633-663, April.
  17. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
  18. Karni, Edi, 1973. "The Transactions Demand for Cash: Incorporation of the Value of Time into the Inventory Approach," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(5), pages 1216-25, Sept.-Oct.
  19. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 24(10), pages 1405-1423, September.
  20. Barnett, William A., 2012. "Getting it Wrong: How Faulty Monetary Statistics Undermine the Fed, the Financial System, and the Economy," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262016915, December.
  21. Cysne, Rubens Penha & Turchick, David, 2010. "Welfare costs of inflation when interest-bearing deposits are disregarded: A calculation of the bias," Economics Working Papers (Ensaios Economicos da EPGE) 700, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  22. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, Econometric Society, vol. 48(5), pages 1305-11, July.
  23. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number frie63-1.
  24. Michael T. Belongia & Peter N. Ireland, 2012. "The Barnett Critique After Three Decades: A New Keynesian Analysis," NBER Working Papers 17885, National Bureau of Economic Research, Inc.
  25. Barnett, William A., 1980. "Economic monetary aggregates an application of index number and aggregation theory," Journal of Econometrics, Elsevier, Elsevier, vol. 14(1), pages 11-48, September.
  26. Rayton, Bruce A. & Pavlyk, Khrystyna, 2010. "On the recent divergence between measures of the money supply in the UK," Economics Letters, Elsevier, Elsevier, vol. 108(2), pages 159-162, August.
  27. Ireland, Peter N, 2000. "Interest Rates, Inflation, and Federal Reserve Policy since 1980," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 32(3), pages 417-34, August.
  28. Rubens Penha Cysne, 2001. "Divisia Index, Inflation and Welfare," Anais do XXIX Encontro Nacional de Economia [Proceedings of the 29th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Gr 020, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  29. Barnett, William A. & Hinich, Melvin J. & Weber, Warren E., 1986. "The regulatory wedge between the demand-side and supply-side aggregation-theoretic monetary aggregates," Journal of Econometrics, Elsevier, Elsevier, vol. 33(1-2), pages 165-185.
  30. Belongia, Michael T, 1996. "Measurement Matters: Recent Results from Monetary Economics Reexamined," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(5), pages 1065-83, October.
  31. Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, Elsevier, vol. 1(2), pages 145-149.
  32. Jones, Barry & Asaftei, Gabriel & Wang, Lian, 2004. "Welfare Cost Of Inflation In A General Equilibrium Model With Currency And Interest-Bearing Deposits," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 8(04), pages 493-517, September.
  33. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. William A. Barnett & Marcelle Chauvet, 2010. "How Better Monetary Statistics Could Have Signaled the Financial Crisis," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS, University of Kansas, Department of Economics 201005, University of Kansas, Department of Economics, revised Aug 2010.
  2. William Barnett, 2013. "Friedman and Divisia Monetary Measures," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS, University of Kansas, Department of Economics 201312, University of Kansas, Department of Economics, revised Dec 2013.
  3. Michael T. Belongia & Peter N. Ireland, 2012. "A "Working" Solution to the Question of Nominal GDP Targeting," Boston College Working Papers in Economics, Boston College Department of Economics 802, Boston College Department of Economics, revised 04 Jan 2013.
  4. Peter N. Ireland, 2012. "The Macroeconomic Effects of Interest on Reserves," NBER Working Papers 18409, National Bureau of Economic Research, Inc.
  5. Richard G. Anderson & Barry Jones & Marcelle Chauvet, 2013. "Nonlinear relationship between permanent and transitory components of monetary aggregates and the economy," Working Papers, Federal Reserve Bank of St. Louis 2013-018, Federal Reserve Bank of St. Louis.
  6. Periklis Gogas & Theophilos Papadimitriou & Elvira Takli, 2013. "Comparison of simple sum and Divisia monetary aggregates in GDP forecasting: a support vector machines approach," Economics Bulletin, AccessEcon, vol. 33(2), pages 1101-1115.
  7. Andrew Keinsley, 2013. "Do You Mind if I Round?: Eliminating the Penny A Structural Analysis," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS, University of Kansas, Department of Economics 201309, University of Kansas, Department of Economics.
  8. Michael T. Belongia & Peter N. Ireland, 2012. "The Barnett Critique After Three Decades: A New Keynesian Analysis," NBER Working Papers 17885, National Bureau of Economic Research, Inc.
  9. John Keating & Logan Kelly & Andrew Lee Smith & Victor J. Valcarcel, 2014. "A Model of Monetary Policy Shocks for Financial Crises and Normal Conditions," Working Papers in Economics and Finance, UWRF - Center for Economic Research, College of Business and Economics, University of Wisconsin - River Falls 1002, UWRF - Center for Economic Research, College of Business and Economics, University of Wisconsin - River Falls.
  10. Peter N. Ireland, 2010. "A New Keynesian Perspective on the Great Recession," Boston College Working Papers in Economics, Boston College Department of Economics 735, Boston College Department of Economics.
  11. Michael T. Belongia & Peter N. Ireland, 2012. "Quantitative Easing: Interest Rates and Money in the Measurement of Monetary Policy," Boston College Working Papers in Economics, Boston College Department of Economics 801, Boston College Department of Economics.
  12. repec:clg:wpaper:2013-02 is not listed on IDEAS
  13. John Keating & Andrew Lee Smith, 2013. "Determinacy and Indeterminacy in Monetary Policy Rules with Money," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS, University of Kansas, Department of Economics 201310, University of Kansas, Department of Economics.
  14. Makram El-Shagi & Sebastian Giesen & Logan J. Kelly, 2012. "Monetary Policy in a World Where Money (Also) Matters," IWH Discussion Papers, Halle Institute for Economic Research 6, Halle Institute for Economic Research.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:17885. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.