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Uncovering the Goodhart's Law: Theory and Evidence

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  • Yosuke Takeda

    ()
    (Sophia University public)

  • Atsuko Ueda

Abstract

This paper addresses the Goodhart's Law in a cash-in-advance economy with monetary policy regime switching. Using the Japanese data of the money velocity, we found that although our cash-credit model fails to generate a downward trend in the actual velocity, the model succeeds in terms of velocity's variation and correlations with money growth rates or nominal interest rates, with procyclicality of velocity unpredictable.

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File URL: http://repec.org/sed2006/up.25204.1138887132.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 162.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:162

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Keywords: Goodhart' Law; velocity of money; Taylor rule; Markov regime swiching; cash-credit model;

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  1. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May.
  2. Miyao, Ryuzo, 1996. "Does a Cointegrating M2 Demand Relation Really Exist in the United States?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 365-80, August.
  3. William T. Gavin & Finn E. Kydland, 1996. "Endogenous money supply and the business cycle," Working Paper 9605, Federal Reserve Bank of Cleveland.
  4. Miyao, Ryuzo, 1996. "Does a Cointegrating M2 Demand Relation Really Exist in Japan?," Journal of the Japanese and International Economies, Elsevier, vol. 10(2), pages 169-180, June.
  5. Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 1997. "The Political Economy of Japanese Monetary Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032473, January.
  6. Carlson, John B. & Hoffman, Dennis L. & Keen, Benjamin D. & Rasche, Robert H., 2000. "Results of a study of the stability of cointegrating relations comprised of broad monetary aggregates," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 345-383, October.
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