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Estimating a Cagan-type demand function for gold: 1561-1913

  • Alexei Deviatov

    ()

    (New Economic School)

  • Neil Wallace

    ()

    (Pennsylvania State University)

Registered author(s):

    Long times series on production of gold and the value of gold, taken from Jastram’s book The Golden Constant, are used to estimate a Cagan-type demand function that relates the real total value of gold to its expected rate of return. The model assumes that gold production and a latent scale variable (income or consumption) are jointly exogenous and that the data are measured with error. The data reject the model: the estimates imply that the real value of gold varies a great deal relative to the expected return and depends negatively, rather than positively, on the expected return.

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    File URL: http://www.cefir.ru/papers/WP80Deviatov.pdf
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    Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0080.

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    Length: 31 pages
    Date of creation: Aug 2006
    Date of revision:
    Handle: RePEc:cfr:cefirw:w0080
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    1. Sargent, Thomas J, 1977. "The Demand for Money During Hyperinflations under Rational Expectations: I," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(1), pages 59-82, February.
    2. Christiano, Lawrence J, 1987. "Cagan's Model of Hyperinflation under Rational Expectations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 33-49, February.
    3. Engsted, Tom, 1993. "Cointegration and Cagan's Model of Hyperinflation under Rational Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 350-60, August.
    4. Taylor, Mark P, 1990. "The Hyperinflation Model of Money Demand Revisited," CEPR Discussion Papers 473, C.E.P.R. Discussion Papers.
    5. Marvin Goodfriend, 1979. "An alternative method of estimating the Cagan money demand function in hyperinflation under rational expectations," Working Paper 79-05, Federal Reserve Bank of Richmond.
    6. Cosslett, Stephen R. & Lee, Lung-Fei, 1985. "Serial correlation in latent discrete variable models," Journal of Econometrics, Elsevier, vol. 27(1), pages 79-97, January.
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