We measure the United States capital stock of money implied by the Divisia monetary aggregate service flow, in a manner consistent with the present-value model of economic capital stock. We permit non-martingale expectations and time varying discount rates. Based on Barnett’s (1991) definition of the economic stock of money, we compute the U.S. economic stock of money by discounting to present value the flow of expected expenditure on the services of monetary assets, where expenditure on monetary services is evaluated at the user costs of the monetary components. As a theoretically consistent measure of money stock, our economic stock of money nests Rotemberg, Driscoll, and Poterba’s (1995) currency equivalent index as a special case, under the assumption of martingale expectations. To compute the economic stock of money without imposing martingale expectations, we use forecasts based on the asymmetric vector autoregressive model and the Bayesian vector autoregressive model. We find the resulting capital-stock growth-rate index to be surprisingly robust to the modeling of expectations.
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Paper provided by EconWPA in its series Macroeconomics with number
0508021.
Length: 39 pages Date of creation: 21 Aug 2005 Date of revision: Handle: RePEc:wpa:wuwpma:0508021
Note: Type of Document - pdf; pages: 39. A revised version of this paper will appear in the Annals of Finance Contact details of provider: Web page: http://129.3.20.41
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Find related papers by JEL classification: E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money G12 - Financial Economics - - General Financial Markets - - - Asset Pricing C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
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Barnett, William A. & Chauvet, Marcelle, 2008.
"The End of the Great Moderation?,"
MPRA Paper
11642, University Library of Munich, Germany.
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