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The Discounted Economic Stock of Money with VAR Forecasting

Author

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  • William Barnett

    ()

  • John Keating

    ()

  • Unja Chae

    ()

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
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • William Barnett & John Keating & Unja Chae, 2006. "The Discounted Economic Stock of Money with VAR Forecasting," Annals of Finance, Springer, vol. 2(3), pages 229-258, July.
  • Handle: RePEc:kap:annfin:v:2:y:2006:i:3:p:229-258
    DOI: 10.1007/s10436-006-0038-y
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    File URL: http://hdl.handle.net/10.1007/s10436-006-0038-y
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    References listed on IDEAS

    as
    1. William A. Barnett & Shu Wu, 2011. "On User Costs of Risky Monetary Assets," World Scientific Book Chapters,in: Financial Aggregation And Index Number Theory, chapter 3, pages 85-105 World Scientific Publishing Co. Pte. Ltd..
    2. William Barnett & Apostolos Serletis & W. Erwin Diewert, 2005. "The Theory of Monetary Aggregation (book front matter)," Macroeconomics 0511008, EconWPA.
    3. 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.
    4. repec:wsi:gjexxx:v:01:y:2012:i:01:n:s225136121250005x is not listed on IDEAS
    5. Rotemberg, Julio J & Driscoll, John C & Poterba, James M, 1995. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 67-83, January.
    6. William Barnett, 2005. "Monetary Aggregation," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200510, University of Kansas, Department of Economics, revised Mar 2005.
    7. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
    8. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    9. William A Barnett & Unja Chae & John W Keating, 2012. "Forecast Design In Monetary Capital Stock Measurement," Global Journal of Economics (GJE), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 1-53.
    10. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    11. 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 272-283, May.
    12. Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, vol. 1(2), pages 145-149.
    13. Keating, John W., 2000. "Macroeconomic Modeling with Asymmetric Vector Autoregressions," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 1-28, January.
    14. 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.
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    Citations

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    Cited by:

    1. Barnett, William A., 2006. "Supply of Money," MPRA Paper 419, University Library of Munich, Germany.
    2. Barnett, William A. & Keating, John W. & Kelly, Logan J., 2008. "Toward a bias corrected currency equivalent index," Economics Letters, Elsevier, vol. 100(3), pages 448-451, September.
    3. Kelly, Logan J. & Barnett, William A. & Keating, John W., 2011. "Rethinking the liquidity puzzle: Application of a new measure of the economic money stock," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 768-774, April.
    4. William Barnett & Jinan Liu, 2017. "User Cost of Credit Card Services under Risk with Intertemporal Nonseparability," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201705, University of Kansas, Department of Economics, revised Sep 2017.
    5. Kelly, Logan J, 2008. "The Stock of Money and Why You Should Care," MPRA Paper 11455, University Library of Munich, Germany.
    6. Barnett, William A. & Chauvet, Marcelle, 2008. "The End of the Great Moderation: “We told you so.”," MPRA Paper 11642, University Library of Munich, Germany.
    7. repec:wsi:gjexxx:v:01:y:2012:i:01:n:s225136121250005x is not listed on IDEAS
    8. Kelly, Logan J, 2008. "The Currency Equivalent Index and the Current Stock of Money," MPRA Paper 7176, University Library of Munich, Germany.
    9. William A. Barnett & Marcelle Chauvet, 2011. "International Financial Aggregation and Index Number Theory: A Chronological Half-Century Empirical Overview," World Scientific Book Chapters,in: Financial Aggregation And Index Number Theory, chapter 1, pages 1-51 World Scientific Publishing Co. Pte. Ltd..
    10. El-Shagi, Makram & Giesen, Sebastian & Kelly, Logan J., 2012. "Monetary Policy in a World Where Money (Also) Matters," IWH Discussion Papers 6/2012, Halle Institute for Economic Research (IWH).
    11. Barnett, William A. & Chauvet, Marcelle, 2011. "How better monetary statistics could have signaled the financial crisis," Journal of Econometrics, Elsevier, vol. 161(1), pages 6-23, March.
    12. William A Barnett & Unja Chae & John W Keating, 2012. "Forecast Design In Monetary Capital Stock Measurement," Global Journal of Economics (GJE), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 1-53.

    More about this item

    Keywords

    Monetary aggregation; Divisia money aggregate; Economic stock of money; User cost of money; Currency equivalent index; Bayesian vector autoregression; Asymmetric vector autoregression; E41; G12; C43; C22; E5;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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; Dynamic Treatment Effect Models; Diffusion Processes

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