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The discounted economic stock of money with VAR forecasting

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Author Info

  • William A. Barnett

    (U. of Kansas)

  • Unja Chae

    (Intel Corporation)

  • John W. Keating

    (U. of Kansas)

Abstract

We measure the economic capital stock of money implied by the Divisia monetary aggregate service flow, in a manner consistent with asset pricing theory. Based on Barnett’s [4] definition of the economic stock of money, we estimate the expected discounted flow of expenditure on the services of monetary assets, where expenditure on monetary services is evaluated at the user costs of the monetary components. We use forecasts based on martingale expectations, asymmetric vector autoregressive expectations, and the Bayesian vector autoregressive expectations. We find the resulting capital-stock index to be surprisingly robust to the modeling of expectations

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 51.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:51

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Keywords: Monetary aggregation; discounted economic capital stock; VAR; robustness; capital asset pricing;

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  1. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986. "Forecasting and conditional projection using realistic prior distribution," Staff Report 93, Federal Reserve Bank of Minneapolis.
  2. William Barnett & Shu Wu, 2004. "On user costs of risy monetary assets," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200404, University of Kansas, Department of Economics, revised Jun 2004.
  3. William Barnett, 2005. "Monetary Aggregation," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200510, University of Kansas, Department of Economics, revised Mar 2005.
  4. Schunk, Donald L, 2001. "The Relative Forecasting Performance of the Divisia and Simple Sum Monetary Aggregates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 272-83, May.
  5. William Barnett & Unja Chae & John Keating, 2005. "Forecast Design in Monetary Capital Stock Measurement," Macroeconomics 0508022, EconWPA.
  6. Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, vol. 1(2), pages 145-149.
  7. Rotemberg, J.J. & Driscoll, J.C. & Poterba, J.M., 1991. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Working papers 585, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  9. Hoover, Kevin D. & Perez, Stephen J., 1994. "Post hoc ergo propter once more an evaluation of 'does monetary policy matter?' in the spirit of James Tobin," Journal of Monetary Economics, Elsevier, vol. 34(1), pages 47-74, August.
  10. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
  11. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  12. William Barnett & Apostolos Serletis & W. Erwin Diewert, 2005. "The Theory of Monetary Aggregation (book front matter)," Macroeconomics 0511008, EconWPA.
  13. Keating, John W., 2000. "Macroeconomic Modeling with Asymmetric Vector Autoregressions," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 1-28, January.
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