The Discounted Economic Stock of Money with VAR Forecasting
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.
|Date of creation:||21 Aug 2005|
|Date of revision:|
|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://econwpa.repec.org|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Julio J. Rotemberg & John C. Driscoll & James M. Poterba, 1991.
"Money, Output and Prices: Evidence from A New Monetary Aggregate,"
NBER Working Papers
3824, National Bureau of Economic Research, Inc.
- 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.
- Rotemberg, J.J. & Driscoll, J.C. & Poterba, J.M., 1991. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Working papers 585, Massachusetts Institute of Technology (MIT), Department of Economics.
- William Barnett, 2005.
- William Barnett, 2005. "Monetary Aggregation," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200510, University of Kansas, Department of Economics, revised Mar 2005.
- Keating, John W., 2000. "Macroeconomic Modeling with Asymmetric Vector Autoregressions," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 1-28, January.
- 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..
- William Barnett & Shu Wu, 2004. "On user costs of risy monetary assets," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200404, University of Kansas, Department of Economics, revised Jun 2004.
- William A. Barnett & Shu Wu, 2004. "On User Costs of Risky Monetary Assets," Macroeconomics 0406009, EconWPA.
- 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.
- 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.
- Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986. "Forecasting and conditional projection using realistic prior distribution," Staff Report 93, Federal Reserve Bank of Minneapolis.
- William Barnett & Apostolos Serletis & W. Erwin Diewert, 2005. "The Theory of Monetary Aggregation (book front matter)," Macroeconomics 0511008, EconWPA.
- 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.
- Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis.
- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
- 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 272-83, May.
- 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 1250005-1-1.
- William Barnett & Unja Chae & John Keating, 2005. "Forecast Design in Monetary Capital Stock Measurement," Macroeconomics 0508022, EconWPA.
- William Barnett & Unja Chae & John Keating, 2005. "Forecast Design in Monetary Capital Stock Measurement," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200516, University of Kansas, Department of Economics, revised Aug 2005.
- Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, vol. 1(2), pages 145-149.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0508021. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.