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Toward a Bias Corrected Currency Equivalent Index

Author

Listed:
  • William Barnett

    (Department of Economics, The University of Kansas)

  • John Keating

    (Department of Economics, The University of Kansas)

  • Logan Kelly

    (School of Business and Economics, College of Charleston)

Abstract

Measuring the economic stock of money, defined to be the present value of current and future monetary service flows, is a difficult asset pricing problem, because most monetary assets yield interest. Thus, an interest yielding monetary asset is a joint product: a durable good providing a monetary service flow and a financial asset yielding a return. The currency equilivant index provides an elegant solution, but it does so by making strong assumptions about expectations of future monetary service flows. These assumptions cause the currency equivalent index to exhibit significant downward bias. In this paper, we propose an extension to the currency equivalent index that will correct for a significant amount of this bias.

Suggested Citation

  • William Barnett & John Keating & Logan Kelly, 2007. "Toward a Bias Corrected Currency Equivalent Index," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200707, University of Kansas, Department of Economics, revised Nov 2007.
    • Handle: RePEc:kan:wpaper:200707
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    File URL: http://www2.ku.edu/~kuwpaper/2007Papers/200707.pdf
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    References listed on IDEAS

    as
    1. William A. Barnett & Unja Chae & John W. Keating, 2011. "The Discounted Economic Stock of Money with VAR Forecasting," World Scientific Book Chapters, in: Financial Aggregation And Index Number Theory, chapter 4, pages 107-150, World Scientific Publishing Co. Pte. Ltd..
    2. Maurice Salles, 2016. "Social choice," Chapters, in: Gilbert Faccarello & Heinz D. Kurz (ed.), Handbook on the History of Economic Analysis Volume III, chapter 36, pages 518-537, Edward Elgar Publishing.
    3. Barnett, William A. & Liu, Yi & Jensen, Mark, 1997. "Capm Risk Adjustment For Exact Aggregation Over Financial Assets," Macroeconomic Dynamics, Cambridge University Press, vol. 1(2), pages 485-512, June.
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    5. Michael T. Belongia, 1990. "Monetary policy on the 75th anniversary of the Federal Reserve System: summary of conference proceedings," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 59-65.
    6. repec:cup:macdyn:v:1:y:1997:i:2:p:485-512 is not listed on IDEAS
    7. William Barnett & Apostolos Serletis & W. Erwin Diewert, 2005. "The Theory of Monetary Aggregation (book front matter)," Macroeconomics 0511008, University Library of Munich, Germany.
    8. 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.
    9. William Barnett, 2005. "Monetary Aggregation," Macroeconomics 0503017, University Library of Munich, Germany.
    10. William A. Barnett, 2000. "The User Cost of Money," Contributions to Economic Analysis, in: The Theory of Monetary Aggregation, pages 6-10, Emerald Group Publishing Limited.
    11. Moulin, Herve, 1994. "Social choice," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 31, pages 1091-1125, Elsevier.
    12. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
    13. Michael T. Belongia, 1989. "Monetary policy on the 75th anniversary of the Federal Reserve system : proceedings of the fourteenth annual Economic Policy Conference, held on October 19-20, 1989," Proceedings, Federal Reserve Bank of St. Louis.
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    Cited by:

    1. Keating, John W. & Kelly, Logan J. & Valcarcel, Victor J., 2014. "Solving the price puzzle with an alternative indicator of monetary policy," Economics Letters, Elsevier, vol. 124(2), pages 188-194.
    2. 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.

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    More about this item

    Keywords

    Currency Equilivant Index; Monetary Aggregation; Money Stock;
    All these keywords.

    JEL classification:

    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other

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