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When Markets Fail: Asset Prices, Government Expenditures, and the Velocity of Money

  • WARBURTON, Christopher E.S.

This paper examines the contributions of financial and macroeconomic variables to the revitalisation of a depressed US economy. Using time series data from 1957 to 2011 and a binary logistic regression model, it finds that government consumption expenditure and gross investment, real personal consumption expenditure, and the velocity of money provide robust possibilities for improving economic growth after the failure of financial and real markets. It concludes that policies that are oriented towards the revitalisation of economic growth should seriously consider the speed at which money circulates in contradistinction to the money stock and asset prices or the wealth effect.

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Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 13 (2013)
Issue (Month): 2 ()
Pages: 73-92

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Handle: RePEc:eaa:aeinde:v:13:y:2013:i:2_6
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  1. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
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  10. LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December.
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  12. Bridges, Jonathan & Rossiter, Neil & Thomas, Ryland, 2011. "Understanding the recent weakness in broad money growth," Bank of England Quarterly Bulletin, Bank of England, vol. 51(1), pages 22-35.
  13. Robert L. Hetzel, 2009. "Monetary policy in the 2008-2009 recession," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 201-233.
  14. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  15. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
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