A Working Solution to the Question of Nominal GDP Targeting


 Adele Harrison
 2 years ago
 Views:
Transcription
1 A Working Soluion o he Quesion of Nominal GDP Targeing Michael T. Belongia Oho Smih Professor of Economics Universiy of Mississippi Box 1848 Universiy, MS and Peer N. Ireland Deparmen of Economics Boson College 140 Commonwealh Avenue Chesnu Hill, MA January 2013 Absrac: Alhough a number of economiss have ried o revive he idea of nominal GDP argeing since he financial crisis of 2008, very lile has been said abou how his objecive migh be achieved in pracice. This paper adops and exends a sraegy firs oulined by Holbrook Working (1923) and laer employed by Hallman, e al. (1991) in he PSar model. I presens a series of heoreical and empirical resuls o argue ha Divisia moneary aggregaes can be conrolled by he Federal Reserve and ha he rend velociies of hese aggregaes exhibi he sabiliy required o make longrun argeing feasible. JEL codes: E58, E52, E51 The auhors wish o hank William Barne, David Beckworh, and Sco Sumner for exremely helpful commens and Yan Li for able research assisance.
2 A Working Soluion o he Quesion of Nominal GDP Targeing Alhough sabilizing nominal GDP has been suggesed before as an objecive for moneary policy acions, an increasing number of economiss have ried o revive he idea since he financial crisis of 2008 and he apparen ineffeciveness of manipulaing he federal funds rae when he zero bound consrain has been me. Bu while he meris of nominal GDP sabilizaion as a final objecive for moneary policy have been emphasized in recen discussions, very lile has been said abou how his goal migh be achieved in pracice. Indeed, whereas earlier discussions offered explici sraegies and esablished linkages beween, for example, nominal GDP and he moneary base (see, e.g., McCallum (1988) and Melzer (1987)) or a broader moneary aggregae (Feldsein and Sock (1994)), he recen discussions have been relaively srong on he goal and relaively silen on how a pah o he goal migh be implemened. 1 Indeed, wih he recen innovaions of paymen of ineres on reserves and unusual behavior of he moneary base in he afermah of he financial crisis, even houghs of reviving some of he older, wellariculaed sraegies have been pu on hold. Thus, for all of he aenion ha nominal GDP argeing has received as a poenial goal for moneary policy, a pracical means of achieving ha end has ye o be offered. 2 In his paper we propose a sraegy for nominal GDP argeing based on a framework firs oulined by Holbrook Working (1923) and used, wih only minor modificaions, by Hallman, e al. (1991) in he PSar model. In hese earlier applicaions, a policymaker is able o evaluae wheher a value for he money sock is consisen wih longrun price sabiliy. Using essenially he same derivaion found in Working s original paper and making appropriae changes o he pracical adapaions employed by Hallman e al., we find a pah for money ha is consisen wih any desired longrun rajecory for nominal GDP. Unlike 1 An excepion is Sumner (1989, 1995) and he suggesion of implemening moneary policy hrough he use of a nominal GDP fuures marke. For a survey of issues regarding nominal GDP argeing, see Bean (1983). Clark (1994) offers some evidence on lagged adjusmen v. forecas adjusmen rules when NGDP argeing is implemened. 1
3 previous applicaions of his framework, we employ Divisia moneary aggregaes in esablishing a pah for money ha he cenral bank should ry o mainain and use a onesided filering algorihm ha can be implemened in real ime o conrol for slowmoving rends in velociy. 3 In wha follows, we firs explain he basic analyics of Working s framework and how we have adaped i o nominal GDP. Then, afer reproducing Hallman e al. s regression resuls o show ha movemens in he Divisia aggregaes consisenly anicipae movemens in nominal income over a sample period ha exends from 1967 hrough he presen, we compare acual pahs for he Divisia moneary aggregaes o alernaive rajecories ha, according o our framework, would have been consisen wih more sable nominal GDP growh since Afer using his comparison o discuss, in paricular, he sance of curren moneary policy, we examine how he Fed migh conrol he behavior of hese Divisia aggregaes wihin an inermediae argeing sraegy. Overall, we conclude ha if nominal GDP is chosen as he cenral bank s objecive (a quesion on which his paper akes no posiion), he sraegy oulined in his paper has several virues: I is ransparen o ouside observers, i is forwardlooking, and ye i can be implemened in a fairly sraighforward manner. 4 In fac, one migh speculae ha one reason for he demise of he Psar model was he possample insabiliy of he velociy of M2, somehing which can be raced o he financial innovaions era bu can be aribued more specifically o he problems inheren in simple sum aggregaion mehods ha fail o inernalize pure subsiuion effecs and would have been a consequence of such hings as he paymen of ineres on deposis, he availabiliy of a broader array of deposi accouns, and he greaer subsiuion among hese accouns by consumers in response o changes in user coss. In his conex, i is ineresing o noe ha Working, nearly niney years ago, devoed an appendix of his paper o an aemp o creae an Index for a Medium of Exchange. Even hough he was wriing long before he era of financial innovaions and he paymen of ineres on checkable deposis, he inuied ha differen componens of a moneary aggregae should be weighed differenly and in his appendix he made an early aemp o do jus ha. One reason we ake no posiion on he desirabiliy of NGDP argeing is he resuls in Wes (1986). Using a model presened in Bean (1983), Wes demonsraed ha he preference of NGDP argeing over, say, money supply argeing depends on values of cerain parameers and, a priori, here is no clear reason o believe why hose should ake a value ha would lead a policymaker o prefer one opion over he oher. We also ake no posiion on wheher argeing he level of nominal GDP is o be preferred o argeing he growh rae of NGDP. Throughou, our purpose is derive a pracical approach o argeing he level of NGDP if ha is o become he cenral bank s adoped goal. 2
4 Working s Framework Working s (1923) objecive was o find a value for he money supply ha would be consisen wih longrun price sabiliy. A he ime of his wriing, many ohers had invesigaed Quaniy Theory relaionships empirically. 5 From his research, sraegies o sabilize he price level emerged bu even Fisher s (1920) plan did no incorporae a mehod for dealing wih lags in he process. Thus, Working s innovaion was o recognize he role of lags and o esablish a policy framework ha embedded a longrun desired pah for price sabiliy. A cenral bank hen could compare he curren price level agains he desired longrun pah and evaluae wheher he sance of policy was oo accommodaive or oo resricive. Using Quaniy Theory relaionships, Working rewroe he basic expression as (V/T) = (P/M). Because (P/M) did no have a definie concepion, Working deal wih is reciprocal. To find a longrun pah for i, he esimaed a rend value for he price level using a regression of he log value of he price level on ime, ime squared, and ime cubed; fuure values for he price level were exrapolaions from his rend regression. Wih his informaion, Working hen could plo, on a log scale, values for (M/P) o illusrae he value of circulaing medium ha would be consisen wih his longrun rend pah for he aggregae price level. In adaping Working s framework for he PSar model, Hallman, e al. (1991) expressed heir basic relaionship as: (1) P * = (M2 V * )/Q *. In his expression, P * is he longrun arge value for he price level a ime, V *, is he longrun equilibrium value for velociy, aken by Hallman, e al, o be he sample mean for M2 velociy, and Q * is he value for poenial real GDP a ime. 6 Rearranging erms so as o apply For more background, see he surveys in Humphrey (1973) and Laidler (2011). Alhough Taylor (1993) published his famous paper on a rule for he implemenaion of moneary policy afer he Psar paper was published, he did no cie i. Noneheless, he had his o say abou an alernaive rule in ha paper (pp ): Since he mid1970s moneary arges have been used in many counries o sae arges for inflaion. If money velociy were sable, hen, given an esimae of poenial oupu growh, money arges would imply a arge for he price level; given velociy and a real oupu arge, he arge price level would obviously fall ou algebraically from he money supply arge. Even hough he 1980s 3
5 he framework more direcly o nominal income argeing and making some desirable changes in empirical choices, he framework o be employed in his paper is: (2) PQ * = M V *, where PQ * is he longrun arge value for nominal GDP, M is he value of a Divisia moneary aggregae, and V * is rend velociy for ha chosen moneary aggregae. Equaion (2) highlighs one key advanage of any nominal income argeing scheme, relaive o he pricelevel or inflaion argeing framework implied by he Psar model in (1): Nominal income argeing allows one o sidesep he challenge of esimaing accuraely poenial oupu in real ime. Meanwhile, he use of a Divisia moneary aggregae in (2) in place of simplesum M2 in (1) is moivaed by Barne s (1980) classic work, which inroduced moneary economiss o he logic behind, and he pracical benefis of, Divisia moneary aggregaion; his empirical choice also disinguishes our approach from ha of Feldsein and Sock (1994), which like he Psar model, uses simple sum M2 as an inermediae arge wihin a nominal GDP argeing sraegy. 7 In (2), we also depar from he Psar framework in ye anoher way, by calculaing rend velociy V * using he onesided version of he HodrickPresco (1997) filer described by Sock and Wason (1999). Figure 1 uses quarerly daa o compare he acual velociies of Divisia M1 and MZM o he rend values obained wih his onesided HP filer. 8 The choice, boh here and below, o focus on M1 and MZM ogeher allows us o assess he robusness of our findings o he choice of narrow versus broad moneary aggregaes. Our series on Divisia have shown ha money velociy is no sable in he shor run, he longrun sabiliy of he velociy of some moneary measures allows one o sae arges for he price level. For example, wih an esimaed secular growh of real oupu of 2.5 percen and a seady velociy, a money growh range of 2.5 percen o 6.5 percen he Fed s arges for 1992 would imply ha he price level arge grows a 0 o 4 percen per year. Given biases such as index number problems in measuring prices, he 2percen per year implici arge inflaion rae is probably very close o price sabiliy or zero inflaion. 7 For a more recen discussion and survey of he exensive lieraure on he Divisia moneary aggregaes, see Barne (2012). The MZM aggregae money, zero mauriy includes hose asses in M2, less small ime deposis, plus insiuiononly money marke muual funds. I firs was discussed in deail by Moley (1988), who referred o i as nonerm M3. I laer picked up he label of MZM. 4
6 M1 and MZM are drawn from he Federal Reserve Bank of S. Louis FRED daabase; Anderson and Jones (2011) describe heir consrucion in deail. Wih quie similar resuls, no shown, we also replicaed he analysis using Anderson and Jones Divisia M2 series, as well as he much broader, Divisia M4 aggregae provided by he Cener for Financial Sabiliy and described in Barne, e al. (2012). The graphs in Figure 1 reveal quie clearly he shifing, bu slowmoving, rends in velociies ha, Reynard (2007) finds, mus be accouned for in idenifying he longrun linkages beween money and prices, no jus in he U.S. bu in Swizerland and he Euro Area as well. 9 Our onesided version of he HP filer imposes he same seing λ = 1600 for he smoohing parameer as is commonly used in he wosided HP filer for quarerly daa. I produces a similar, bu somewha more volaile, measure of he rend, reflecing he fac ha, unlike he sandard HP filer, he onesided varian only uses daa up hrough period in consrucing he value for he rend a period. This feaure, however, is precisely wha allows our algorihm o be implemened in real ime and also makes our measure suiable for use in he forecasing equaions described below. An added advanage of his oneside filer is ha once he parameer λ is fixed, no addiional parameers need o be esimaed or calibraed in consrucing he series for rend velociy: As explained by Sock and Wason (1999, p. 301), values for he rend can be generaed quickly and easily using he equaions of he sandard Kalman filer. Oherwise, equaion (2) parallels (1) for he Psar model by depicing he nominal GDP arge PQ * for ime as one ha is implied by he level of he Divisia moneary aggregae M for ha period, given he value of V *, and by suggesing ha he acual value for nominal income PQ should end o graviae, over ime, owards he arge PQ *. To es his hypohesis, we esimae a se of regression equaions ha mirror Hallman e al. s (1991, p. 847) in heir 9 Along he same lines, i is ineresing o noe once again ha Working (1923) himself found i necessary o conrol for slowmoving shifs in rends by including ime squared and cubed in addiional o ime iself in his regression equaions. Since Working s regressionbased approach migh well be considered an early version of he modern, hough only slighly more elaborae, filering procedures used here, we find i especially useful o race he origins of our own approach back o his as well as o he more familiar Psar model. 5
7 specificaion. Specifically, Hallman e al. find ha in quarerly daa running from hrough , inflaion ends o rise when he longrun price arge P * implied by (1) is above he acual price level P ; likewise, inflaion falls when P * is below P. They confirm he saisical significance of his resul by regressing he change in inflaion on four of is own lags and he lagged value of he price gap, defined as he difference beween p * and p, he naural logarihms of P * and P, and rejecing he null hypohesis ha he coefficien on he lagged price gap equals zero. Here, similarly, we regress Δ 2 pq, he change in nominal income growh (and hence he analog o Hallman e al. s Δ = Δ 2 p, he change in he inflaion rae) on four of is own quarerly lags and on he lagged value of he nominal income gap, defined as he difference beween pq *, he naural log of he nominal income arge in (2), and pq, he log of he acual value of nominal GDP during period. Alhough he availabiliy of daa on he Divisia moneary aggregaes pushes he saring dae for our own quarerly sample ahead o , we can now exend ha sample well beyond Hallman e al. s, all he way hrough Our esimaes, wih he absolue value of he associaed saisic below each coefficien, are Δ 2 pq = 0.605Δ 2 pq Δ 2 pq Δ 2 pq Δ 2 pq (pq * 1 pq 1) (8.3) (4.4) (3.5) (1.0) (3.7) for Divisia M1 and Δ 2 pq = 0.612Δ 2 pq Δ 2 pq Δ 2 pq Δ 2 pq (pq * 1 pq 1) (8.3) (4.4) (3.5) (1.0) (3.4) for Divisia MZM. 10 In boh cases, he large and saisically significan coefficien on he lagged nominal GDP gap indicaes ha nominal income growh acceleraes when he gap is posiive and deceleraes when he gap is negaive, so ha acual nominal GDP converges over ime o he longrun arge defined in (2). Table 1 shows, addiionally, ha he lagged nominal GDP 10 Again following Hallman e al. (1991), quarerly changes in nominal GDP growh are muliplied by 400, so ha hey are expressed in annualized percenage poins, and he nominal GDP gap is muliplied by 100, so ha i is measured in percenage poins, in hese regressions. A consan erm, shown in able 1 bu no in he equaions as displayed here, is also included in each regression. 6
8 gap reains is significance across subsamples running from hrough and from hrough Thus, a nominal income arge se wih reference o eiher a narrow or a broad Divisia moneary aggregae proves useful in forecasing fuure nominal GDP growh, even in he mos recen daa. Mos imporanly from a pracical perspecive, no breakdowns of he forecasing equaion are observed, and no special shifadjusmens beyond accouning for he slowmoving rends in V * using he onesided filer are needed o mainain he sabiliy of hese empirical relaionships. Equaion (2) follows he approach in Hallman e al. (1991) by defining he longrun arge for nominal GDP in erms of he observed value of he moneary aggregae and he rend value of velociy. I is equally useful, however, o urn he equaion around, and use i o idenify he pah for a moneary aggregae ha is consisen wih a desired rajecory for nominal GDP. Towards his end, le (3) M * = PQ * /V * define he arge M * for money ha is consisen wih a chosen arge PQ * for nominal income, given he longrun value for velociy V *. In he Unied Saes beween 1985 and 2007, in fac, nominal GDP grew a an average annual rae of almos exacly 5.5 percen. The op panel of Figure 2 plos he acual series for he logarihm of nominal GDP agains a rend line wih his slope, fied via a leassquares regression over he 23year period. The boom panel, meanwhile, shows deviaions of nominal GDP from his rend, highlighing he modes swings experienced during he Grea Moderaion as well as he much more pronounced gap ha opened during he mos recen recession and coninues o widen oday. As noed by Woodford (2012), nominal GDP now lies more han 15 percen below a rend line esimaed wih daa from he period before he financial crisis. Inerpreing he rend line in Figure 2 as a arge pah for nominal GDP ha exends hrough 2012:3, Figure 3 plos he gaps beween he logs of acual Divisia M1 and MZM and he corresponding arge values for money implied by equaion (3). Wih he regression resuls from above in mind, one can view posiive values for hese money gaps as puing upward pressure on nominal GDP growh and negaive values as puing downward pressure on 7
9 nominal GDP; he gaps hereby indicae wheher moneary policy was oo accommodaive, oo resricive, or appropriaely neural during any given period. In fac, negaive values for boh he M1 and MZM gaps are observed jus before he recession of , and boh series decline, while remaining slighly posiive, before he recession of Larger posiive gaps, meanwhile, appear during he economic recoveries of he middle 1980s and early 1990s. Mos significanly, however, boh panels of Figure 3 sugges ha he sance of moneary policy shifed gradually from ease o ighness owards he middle of he las decade and, in fac, began o exer a considerable drag on nominal income growh in 2005 and 2006, hereby supporing Hezel s (2012) claim ha Federal Reserve policy was iself a key facor in riggering he iniial slowdown and severe recession ha followed. Wha s more, boh figures sugges ha despie he Federal Reserve s effors o lower ineres raes and increase dramaically he supply of bank reserves, insufficien growh in he moneary aggregaes, paricularly agains he backdrop of heighened demand for safe and highly liquid asses refleced by he downward movemens in rend velociy shown in Figure 1, coninues o severely depress nominal GDP in he U.S. economy oday. 11 Overall, he picure ha emerges from Figure 3 is one of persisen volailiy in he sance of moneary policy, swiching from periods of ease o conracion and back again. 12 This volailiy is no enirely unexpeced, however, because, under a regime of ineresraeargeing, a cenral bank will have o change he quaniy of reserves (and money) o mainain is ineres rae peg. Thus, in addiion o offering a perspecive on wheher moneary policy has been relaively easy or resricive a various poins in ime, Figure 3 also can be inerpreed as offering evidence on one consequence implemening moneary policy hrough an ineres rae 11 Once again, he resuls shown in Figure 3 appear similar when he analysis is applied o Divisia M2 and M4, excep ha weakness in large ime deposis, repurchase agreemens, and commercial paper highly liquid money marke insrumens included in he M4 aggregae bu no in M1 or MZM make moneary policy look even more resricive hroughou he period since Hezel (2008, Chaper 23, and 2012, Chaper 8) characerizes hese variaions as sopgo moneary policy and offers a deailed explanaion for why i may have evolved in his manner over he pas five decades. 8
10 arge: Judged in reference o a smooh pah for nominal GDP, argeing he federal funds rae apparenly has creaed an inheren insabiliy in moneary policy. In summary, he foregoing discussion has ried o esablish ha moneary policy has he poenial o hi a longrun pah for nominal GDP if i can conrol he behavior of a Divisia moneary aggregae ha would keep nominal GDP on such a arge pah. I is o his quesion of moneary conrol we now urn. Money Mulipliers for Simple Sum and Divisia Aggregaes Spind (1983) exends Barne s (1980) work by deriving general expressions for he mulipliers of Divisia moneary aggregaes. Here, hese expressions are reproduced for he special case of aggregaes formed from currency and a single ype of ineresbearing deposi. The resuls make clear how he appearance of usercos erms in he budgeshare weighs of he Divisia index can and seemingly do help dampen volailiy in he behavior of is companion muliplier. A series of numerical examples, based on hese expressions ogeher wih a model of he demand for currency and deposis drawn from Belongia and Ireland (2012), reveals ha for a wide range of plausible parameerizaions, he muliplier for he Divisia moneary aggregae is likely o more sable han he muliplier for he corresponding simple sum measure. We find ha his same paern appears in he U.S. daa. Le D, C, and The simple sum moneary aggregae R denoe he dollar values of deposis, currency, and bank reserves. s M and he moneary base H are hen defined by (4) M = D + C s and (5) H = R + C. Following he usual roue owards obaining an expression for he money muliplier of he simple sum aggregae, le (6) = / k C D 9
11 denoe he currencydeposi raio and (7) = / r R D denoe he reserve raio. Using (4)(7), he simple sum muliplier can be calculaed as (8) s M D + C 1+ k m = = =. H R + C r + k s Equaion (8) depics he exbook resul ha he money muliplier depends inversely on boh he currencydeposi raio and he reserve raio. Because Divisia indexes are growh rae indexes, however, i is useful for he sake of comparison o express he muliplier for he simple sum aggregae in is less familiar growh rae form as well. Spind (1983) accomplishes his ask using he approximaions (9) w + w w + w Δ = Δ + Δ 2 2 D D C C s 1 1 ln( M ) ln( D) ln( C) and (10) v + v v + v Δ = Δ + Δ 2 2 R R C C 1 1 ln( H) ln( R) ln( C) for he growh raes of he simple sum aggregae and he money base, where (11) w D D 1 = = = s M D + C 1+ k D and (12) w C C k = = = s M D + C 1+ k C represen he quaniy shares of deposis and currency in he simple sum aggregae and, analogously, (13) v R R r = = = R H R + C r + k and 10
12 (14) v C C k = = = C H R + C r + k represen he quaniy shares of reserves and currency in he moneary base. Equaions (9) (14) combine o yield (15) Δ 1 = k + k Δ s 1 ln( m ) ln( k) 2 1+ k 1+ k 1 1 r r 1 1 k k 1 + Δln( r) + Δ ln( k), 2 r + k r 1+ k 1 2 r + k r 1+ k 1 resaing (8) in growh rae form. Meanwhile, he growh rae of he Divisia quaniy aggregae currency is defined in discree ime by d M of deposis and (16) s + s s + s Δ = Δ + Δ 2 2 D D C C d 1 1 ln( M ) ln( D) ln( C), where (16) replaces he quaniy shares ha appear in (9) wih expendiure shares on he moneary services provided by deposis and currency. These shares are compued using Barne s (1978) formulas for he user coss D u and C u of deposis and currency: (17) u B D ρ ρ = B 1+ ρ D and B ρ = 1 + ρ C (18) u, B B where ρ denoes he rae of reurn on a benchmark asse ha provides no moneary services, D ρ denoes he ownrae of reurn of deposis, and (18) reflecs he fac ha currency does no pay ineres. Le (19) u u ρ C B = = D B D u ρ ρ 11
13 denoe he raio of he user cos of currency o he user cos of deposis. Using his expression ogeher wih he formula (6) defining he currencydeposi raio, he expendiure shares appearing in (16) may be compued as (20) s D u D 1 = = u D + u C 1+ uk D D C and s C uc uk = = u D + u C 1+ uk C (21). D C Equaions (10), (13), (14), (16), (20), and (21) combine o yield an expression for he growh rae of he money muliplier d m for he Divisia aggregae: (22) Δ 1 = uk + u k Δ d 1 1 ln( m ) ln( k) 2 1+ uk 1+ u 1k 1 1 r r 1 1 k k 1 + Δln( r) + Δ ln( k). 2 r + k r 1+ k 1 2 r + k r 1+ k 1 Spind (1983) shows how (22) exends o he more general case, wih muliple ypes of deposis and reserve asses. Comparing (15) and (22) reveals ha he relaive user cos erm u defined in (19) eners ino he money muliplier formula for he Divisia aggregae bu no for he corresponding simple sum measure. Inuiively, he wo mulipliers coincide when u = 1; in his case, deposis pay no ineres, implying ha an opimizing agen will be indifferen beween he moneary services provided by an addiional dollar in deposis and he moneary services provided by an addiional dollar in currency and will, in ha sense, view deposis and currency as perfec subsiues a he margin. Equaions (15) and (22) indicae ha movemens in he reserve raio r affec he mulipliers for he Divisia and simple sum aggregaes symmerically. Since u > 1 whenever deposis do pay ineres, however, he firs erm inside brackes on he righhand side of (22) will ypically be a larger posiive number han he corresponding erm in 12
14 (15), suggesing ha, in paricular, a decrease in he currencydeposi raio k ha increases he money muliplier for he simple sum aggregae will end o produce a smallersized increase in he money muliplier for he Divisia aggregae. Two observaions, however, force us o sop shor of using his comparison beween (15) and (22) alone o claim ha he money muliplier for he Divisia aggregae will surely be more sable han he money muliplier for he simple sum measure. Firs, while he growh rae formula (15), like he more familiar level formula (8), implies ha a fall in he currencydeposi raio will always cause he money muliplier for he simple sum aggregae o rise, sufficienly large values of he relaive user cos variable response o he same change in u may cause he money muliplier o fall in k : Under such circumsances, ha are larger, in absolue value, han he corresponding changes in d m could exhibi movemens s m. Second, if mos changes in he currencydeposi raio reflec underlying changes in user coss brough abou by exogenous shocks or moneary policy acions ha change eiher he benchmark ineres B rae ρ or he spread beween he benchmark rae and he own rae on deposis hen u will vary ogeher wih ρ B ρ, k, producing movemens in he money muliplier for he Divisia aggregae ha are difficul o pin down from an inspecion of (22) alone. To resolve hese ambiguiies, we combine (15) and (22), which are, by hemselves, simply accouning formulas ha idenify he more fundamenal deerminans of he money mulipliers, wih elemens drawn from he more deailed, general equilibrium model of he demand for moneary asses presened in Belongia and Ireland (2012). In his model, a represenaive household economizes on shopping ime using an aggregae D a M of moneary services obained from currency C and deposis D, where he moneary aggregaor akes he consan elasiciy form (23) M = [ v C + (1 ν ) D ] a 1/ ω ( ω 1)/ ω 1/ ω (1 ω)/ ω ω/( ω 1) 13
15 and he parameers saisfy 0< ν < 1 and ω > 0 opimally chooses he currencydeposi raio variable u defined above, in (19). In paricular,. Wih his specificaion, he household k as a funcion of he same opporuniy cos (24) k ν 1 = 1 ν u ω, a relaion ha associaes an increase in he opporuniy cos of currency relaive o deposis wih a decline in currencydeposi raio. Equaion (24) can be combined wih eiher (15) or (22) o obain a model of how he money muliplier for eiher he simple sum or he Divisia aggregae changes in response o movemens in he currencydeposi raio ha are ulimaely driven by changes in he user cos variable u. Monhly daa covering he period from hrough guide us in calibraing his model: The sample s saring dae marks he beginning of he era in which consumers have had access o a wide range of ineresearning deposis, while he erminal dae ensures ha he figures are no influenced unduly by he exreme flucuaions in moneary variables winessed (and shown, for insance, in our own Figure 3 from above) during and since he financial crisis. Over his period, he average raio of Federal Reserve Bank of S. Louis adjused reserves o deposis was for M1 and for MZM; hence, in evaluaing (15) and (22), he reserve raio is fixed a eiher r = 0.12 or r = The average raio of currency o deposis was for M1 and for MZM; hence, in (24), he parameer ν is chosen o mach a value of k = 0.60 or k = As noed in Belongia and Ireland (2012), he price aggregaor (25) ρ ρ ν ρ ν ρ ρ B a B 1 ω B D 1 ω 1/(1 ω) = [ ( ) + (1 )( ) ], 13 Since (24) implies ha he average currencydeposi raio also depends on he elasiciy of subsiuion parameer, he seing for ν is adjused as ω varies across he range of examples considered below o mainain hese consan values of k. 14
16 a is dual o he quaniy aggregaor (23), where ρ denoes he own rae of reurn on he rue moneary aggregae M and ρ and a B D ρ are, as in (17)(19), he benchmark reurn and he own rae on deposis. Daa provided hrough he Cener for Financial Sabiliy and also B described by Barne, e al. (2012) include readings on benchmark raes of reurn ρ as well as on ineres rae aggregaes for Divisia M1 and Divisia MZM ha can serve as measures of B ρ. Average values over he period in hese daa are ρ = for he a B a benchmark rae, ρ ρ B a = for he M1 aggregae, and ρ ρ = for MZM. We use D hese figures, ogeher wih (25), o back ou implied values for ρ, he average own rae on deposis in each moneary aggregae, hen subsiue he average benchmark and deposi raes ino (19) o obain an iniial seing for u when evaluaing (15), (22), and (24) numerically. Wih he model hereby calibraed for boh M1 and MZM cases, Table 2 shows values of s d he derivaives ln( m ) / u and ln( m ) / u compued numerically using (15), (22), and (24), for various values of he parameer ω measuring he elasiciy of subsiuion beween currency and deposis. Thus, each enry in he able quanifies he response of he money muliplier for eiher he simple sum or he Divisia aggregae o a shock or moneary policy acion ha increases he relaive user cos of currency and hereby leads, hrough (24), o a decrease in he currencydeposi raio. In every case, he resuls confirm he inuiion suggesed, earlier, by a direc comparison of (15) and (22). The posiive values repored for s ln( m ) / u indicae ha a shock ha causes he currencydeposi raio o fall causes he d simple sum muliplier o rise; bu he values repored for ln( m ) / u sill posiive, ye disincly smaller in magniude show ha he Divisia muliplier rises as well, bu by a smaller amoun. Thus, while i is possible o concoc examples in which he opposie is rue, his realisically calibraed model consisenly suggess ha he money muliplier for a Divisia aggregae is likely o be more sable han he money muliplier for he corresponding simple sum measure. 15
17 Table 3 shows ha he relaionship prediced by he model also holds rue in he U.S. daa. For he same period used in he calibraion exercise, and for hree addiional sample periods considered in he forecasing exercises below, he money muliplier for he Divisia M1 or MZM aggregae has a sandard deviaion ha is smaller han ha of he muliplier for he corresponding simple sum measure. Wheher hese smaller monhomonh movemens in he Divisia money muliplier are also forecasable is he subjec of he nex secion. Forecasing Experimens The muliplier relaionships explored above sugges several hypoheses and relaed experimens ha would updae he resuls repored by Spind (1984). Because one of he poenial errors ha could move GDP off he arge pah would be conrol errors ha resul from an inabiliy o forecas movemens in he Divisia money muliplier ouofsample, our specific goal here is o evaluae, wihin he conex of a nominal GDP argeing framework, which pair of insrumen and moneary aggregae would be mos likely o keep nominal GDP on a arge pah. Wih wo Divisia aggregaes M1 and MZM as he basis for calculaing a fuure pah for money, he cenral bank mus decide which insrumen is mos closely linked o he behavior of hese measures. In he forecasing exercise below, we will consider mulipliers derived from four poenial insrumens of conrol: Adjused reserves, oal reserves, nonborrowed reserves, and he adjused moneary base. Across he inerval , we firs esimae univariae ARMA models for each muliplier series over hree subsamples. The resuls of hose esimaions hen are used o calculae errors from saic, ouofsample forecass over horizons of hree years following he erminal daa poin of he esimaion inerval. The subsamples were chosen o evaluae he effecs of noable insiuional changes, hereby confroning he models wih heir greaes challenge. The firs forecas period covers he period of he Fed's experimen wih moneary argeing ( ). The second esimaion period ends a he ime of he Y2K injecion of reserves such ha he forecas period covers a sample period when he Fed was draining reserves from he sysem and hen dealing wih a recession ha may have been caused by is 16
18 excessively resricive acions posy2k. 14 The hird esimaion period spans he Grea Moderaion and ends jus prior o he onse of he mos recen downurn; mos noably, however, his is a period in which any emphasis on money and moneary conrol had disappeared from discussions of moneary policy. Before proceeding wih he forecasing experimen, i is insrucive o presen he daa in broad overview. Also, because of he wholesale changes in financial markes ha occurred in he early 1980s, hese summary saisics are repored for hree sample periods: , , and he enire period under sudy. Alhough he daa in Table 4 reveal very broad similariies across alernaive money mulipliers and over ime, he muliplier derived from nonborrowed reserves exhibis a sandard deviaion ha is subsanially larger han ha of he base or adjused reserves; somewha surprisingly, his resul prevails even in he sample period prior o he adven of financial innovaions. On is face his does no mean ha nonborrowed reserves canno be used as he cenral bank s insrumen of conrol or ha movemens in his muliplier canno be forecased ouofsample, bu is consisenly larger sandard deviaion is somehing o noe as he forecasing exercises are underaken. The resuls of he saic forecass are repored in Table 5. Because he foregoing examples for nominal GDP examined only Divisia M1 and MZM we limi our analysis o hose variables bu hese analyics could be applied o oher Divisia aggregaes as well. Again, we conduc he forecasing experimen over hree differen periods of ime o minimize he chances ha any paricular resul is due o happensance. 15 Variables chosen o represen he cenral bank's policy insrumen (H) in each able include adjused reserves (ADJ RES), nonborrowed In he middle of his esimaion period, he Fed reduced reserve requiremens on demand deposis from welve o en percen in April 1992 and eliminaed reserve requiremens on nonpersonal ime deposis in December For example, he relaively low and sable raes of base/reserves/money growh over he las decade may inroduce an "illusion" of more precise moneary conrol. Sabiliy in inflaion and ineres raes coupled wih generally sable real growh also could conribue o his illusion. Or, hese resuls may sugges ha he sandard money muliplier model be reexamined in he conex of modern insiuional arrangemens wih special aenion o changes ha would end o enhance moneary conrol. 17
19 reserves (NBR), oal reserves (TOT RES), and he adjused moneary base (BASE) as repored by he Federal Reserve Bank of S. Louis. The cell enries include wo error saisics: Roo mean squared error (RMSE) and mean absolue error (MAE). We firs discuss resuls for each moneary aggregae in urn, hen aemp o draw more general conclusions by reviewing he resuls as a group, and conclude wih a final se of experimens ha speak direcly o he possibiliy of using a Divisia moneary aggregae as an inermediae arge agains he backdrop of he financial crisis of 2008 and he insiuional disrupions and changes ha followed. The Divisia M1 Aggregae The resuls for he Divisia measure of M1 and he four variables used o represen he Fed's policy insrumen indicae ha, in all cases and across all sample periods, he moneary base muliplier is associaed wih he smalles MAE and RMSE. Moreover, in many cases, he error saisics for he base muliplier are an order of magniude smaller han hose of he nex closes compeior. Thus, if he Fed were o implemen his paricular approach o NGDP argeing wih Divisia M1 as is guide, he moneary base would appear o be he policy insrumen ha would generae he smalles conrol error. Wih respec o he general resuls over sample periods, i is ineresing o noe ha, for he mos par, he forecas errors are no markedly differen across ime. This resul is surprising because he inroducion of new bank liabiliies no subjec o reserve requiremens, he increasing use of sweep aciviies by banks, and he reducion in reserve requiremens more generally should have made moneary conrol subjec o larger errors. The Divisia MZM Aggregae Resuls for he MZM mulipliers indicae ha, as for Divisia M1, he muliplier derived from he moneary base produces he lowes forecas errors for each of he hree sample periods and hose errors are lower by a subsanial margin compared o he hree oher alernaives. Also, as in he case of Divisia M1, he nonborrowed reserves insrumen produces he highes MAE and RMSE values. Finally, i is ineresing o noe ha he conrol errors for he much broader MZM liabiliies grouping are similar o hose for he narrow M1 aggregae. 18
20 Thus, while one reason o choose beween a narrow and broad inermediae arge ofen is how closely i is associaed wih he cenral bank s insrumen of conrol, here is nohing in Table 5 ha would lead one o prefer srongly one Divisia measure o he oher; i seems as if he cenral bank could use he moneary base o influence he pah of eiher wih comparable success. The Recen Financial Crisis and Moneary Conrol The foregoing experimens all were conduced over sample periods prior o he recen financial crisis and responses o i by he Federal Reserve ha have made, in he minds of many observers, reserves and he moneary base uninformaive indicaors of cenral bank acions. Moreover, he inroducion of paymen of ineres on reserves would have weakened, if no severed, any link beween radiional measures of cenral bank liabiliies and money o a degree ha discussions of moneary conrol would be all bu a moo poin, pos Taken a face value, hese poins migh seem correc. For pracical purposes, however, he quesion facing a cenral bank always becomes one of wha i wishes o accomplish. For example, here is lile doub ha sweep accouns represen an effor by banks o evade reserve requiremens and his evasion complicaes measuremen of he money supply. As a bank regulaor, however, he Federal Reserve has a number of opions o conrol or eliminae his behavior if, in fac, greaer conrol and more accurae measuremen of he money supply were a policy objecive. 16 Wih regard o he pos2008 environmen, a similar logic applies. While i is rue ha he Federal Reserve has added a large volume of asses o is porfolio and begun o pay ineres on reserves, hese acions have no necessarily disored all linkages beween he Fed s balance shee and he aggregae quaniy of money. Taom (2011), for example, has derived boh balance shee and muliplier relaionships in he afermah of he financial crisis and found ha a relaively sraighforward adjusmen subracing excess reserves from he 16 Feldsein and Sock (1994, pp ) make a similar poin wih respec o heir NGDP argeing framework based on simple sum M2. They argue ha he Federal Reserve could exercise igher conrol over sum M2 by reexending reserve requiremens o he nonm1 componens of he broader moneary aggregae and paying ineres on reserves as well. 19
11/6/2013. Chapter 14: Dynamic ADAS. Introduction. Introduction. Keeping track of time. The model s elements
Inroducion Chaper 14: Dynamic DS dynamic model of aggregae and aggregae supply gives us more insigh ino how he economy works in he shor run. I is a simplified version of a DSGE model, used in cuingedge
More informationMACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR
MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR The firs experimenal publicaion, which summarised pas and expeced fuure developmen of basic economic indicaors, was published by he Minisry
More informationThe Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas
The Greek financial crisis: growing imbalances and sovereign spreads Heaher D. Gibson, Sephan G. Hall and George S. Tavlas The enry The enry of Greece ino he Eurozone in 2001 produced a dividend in he
More informationDuration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613.
Graduae School of Business Adminisraion Universiy of Virginia UVAF38 Duraion and Convexiy he price of a bond is a funcion of he promised paymens and he marke required rae of reurn. Since he promised
More informationMeasuring macroeconomic volatility Applications to export revenue data, 19702005
FONDATION POUR LES ETUDES ET RERS LE DEVELOPPEMENT INTERNATIONAL Measuring macroeconomic volailiy Applicaions o expor revenue daa, 1970005 by Joël Cariolle Policy brief no. 47 March 01 The FERDI is a
More informationImpact of Debt on Primary Deficit and GSDP Gap in Odisha: Empirical Evidences
S.R. No. 002 10/2015/CEFT Impac of Deb on Primary Defici and GSDP Gap in Odisha: Empirical Evidences 1. Inroducion The excessive pressure of public expendiure over is revenue receip is financed hrough
More informationMorningstar Investor Return
Morningsar Invesor Reurn Morningsar Mehodology Paper Augus 31, 2010 2010 Morningsar, Inc. All righs reserved. The informaion in his documen is he propery of Morningsar, Inc. Reproducion or ranscripion
More informationJournal Of Business & Economics Research September 2005 Volume 3, Number 9
Opion Pricing And Mone Carlo Simulaions George M. Jabbour, (Email: jabbour@gwu.edu), George Washingon Universiy YiKang Liu, (yikang@gwu.edu), George Washingon Universiy ABSTRACT The advanage of Mone Carlo
More informationSPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S.
Paul Ferley Assisan Chief Economis 4169747231 paul.ferley@rbc.com Nahan Janzen Economis 4169740579 nahan.janzen@rbc.com SPECIAL REPORT May 4, 2010 Shifing Drivers of Inflaion Canada versus he U.S.
More informationWhy Did the Demand for Cash Decrease Recently in Korea?
Why Did he Demand for Cash Decrease Recenly in Korea? Byoung Hark Yoo Bank of Korea 26. 5 Absrac We explores why cash demand have decreased recenly in Korea. The raio of cash o consumpion fell o 4.7% in
More informationWhy Do Real and Nominal. InventorySales Ratios Have Different Trends?
Why Do Real and Nominal InvenorySales Raios Have Differen Trends? By Valerie A. Ramey Professor of Economics Deparmen of Economics Universiy of California, San Diego and Research Associae Naional Bureau
More informationHedging with Forwards and Futures
Hedging wih orwards and uures Hedging in mos cases is sraighforward. You plan o buy 10,000 barrels of oil in six monhs and you wish o eliminae he price risk. If you ake he buyside of a forward/fuures
More informationINVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS
INVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS Ilona Tregub, Olga Filina, Irina Kondakova Financial Universiy under he Governmen of he Russian Federaion 1. Phillips curve In economics,
More informationChapter 8: Regression with Lagged Explanatory Variables
Chaper 8: Regression wih Lagged Explanaory Variables Time series daa: Y for =1,..,T End goal: Regression model relaing a dependen variable o explanaory variables. Wih ime series new issues arise: 1. One
More informationPROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE
Profi Tes Modelling in Life Assurance Using Spreadshees PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Erik Alm Peer Millingon 2004 Profi Tes Modelling in Life Assurance Using Spreadshees
More informationPrice elasticity of demand for crude oil: estimates for 23 countries
Price elasiciy of demand for crude oil: esimaes for 23 counries John C.B. Cooper Absrac This paper uses a muliple regression model derived from an adapaion of Nerlove s parial adjusmen model o esimae boh
More informationII.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal
Quarerly Repor on he Euro Area 3/202 II.. Deb reducion and fiscal mulipliers The deerioraion of public finances in he firs years of he crisis has led mos Member Saes o adop sizeable consolidaion packages.
More informationRevisions to Nonfarm Payroll Employment: 1964 to 2011
Revisions o Nonfarm Payroll Employmen: 1964 o 2011 Tom Sark December 2011 Summary Over recen monhs, he Bureau of Labor Saisics (BLS) has revised upward is iniial esimaes of he monhly change in nonfarm
More informationAppendix D Flexibility Factor/Margin of Choice Desktop Research
Appendix D Flexibiliy Facor/Margin of Choice Deskop Research Cheshire Eas Council Cheshire Eas Employmen Land Review Conens D1 Flexibiliy Facor/Margin of Choice Deskop Research 2 Final Ocober 2012 \\GLOBAL.ARUP.COM\EUROPE\MANCHESTER\JOBS\200000\22348900\4
More informationVector Autoregressions (VARs): Operational Perspectives
Vecor Auoregressions (VARs): Operaional Perspecives Primary Source: Sock, James H., and Mark W. Wason, Vecor Auoregressions, Journal of Economic Perspecives, Vol. 15 No. 4 (Fall 2001), 101115. Macroeconomericians
More informationDOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR
Invesmen Managemen and Financial Innovaions, Volume 4, Issue 3, 7 33 DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Ahanasios
More informationGraphing the Von Bertalanffy Growth Equation
file: d:\b1732013\von_beralanffy.wpd dae: Sepember 23, 2013 Inroducion Graphing he Von Beralanffy Growh Equaion Previously, we calculaed regressions of TL on SL for fish size daa and ploed he daa and
More informationThe naive method discussed in Lecture 1 uses the most recent observations to forecast future values. That is, Y ˆ t + 1
Business Condiions & Forecasing Exponenial Smoohing LECTURE 2 MOVING AVERAGES AND EXPONENTIAL SMOOTHING OVERVIEW This lecure inroduces imeseries smoohing forecasing mehods. Various models are discussed,
More informationChapter 8 Student Lecture Notes 81
Chaper Suden Lecure Noes  Chaper Goals QM: Business Saisics Chaper Analyzing and Forecasing Series Daa Afer compleing his chaper, you should be able o: Idenify he componens presen in a ime series Develop
More informationBALANCE OF PAYMENTS. First quarter 2008. Balance of payments
BALANCE OF PAYMENTS DATE: 20080530 PUBLISHER: Balance of Paymens and Financial Markes (BFM) Lena Finn + 46 8 506 944 09, lena.finn@scb.se Camilla Bergeling +46 8 506 942 06, camilla.bergeling@scb.se
More informationForecasting, Ordering and Stock Holding for Erratic Demand
ISF 2002 23 rd o 26 h June 2002 Forecasing, Ordering and Sock Holding for Erraic Demand Andrew Eaves Lancaser Universiy / Andalus Soluions Limied Inroducion Erraic and slowmoving demand Demand classificaion
More informationOption PutCall Parity Relations When the Underlying Security Pays Dividends
Inernaional Journal of Business and conomics, 26, Vol. 5, No. 3, 22523 Opion Puall Pariy Relaions When he Underlying Securiy Pays Dividends Weiyu Guo Deparmen of Finance, Universiy of Nebraska Omaha,
More informationMultiple Structural Breaks in the Nominal Interest Rate and Inflation in Canada and the United States
Deparmen of Economics Discussion Paper 0007 Muliple Srucural Breaks in he Nominal Ineres Rae and Inflaion in Canada and he Unied Saes Frank J. Akins, Universiy of Calgary Preliminary Draf February, 00
More informationRisk Modelling of Collateralised Lending
Risk Modelling of Collaeralised Lending Dae: 4112008 Number: 8/18 Inroducion This noe explains how i is possible o handle collaeralised lending wihin Risk Conroller. The approach draws on he faciliies
More informationChapter 7. Response of FirstOrder RL and RC Circuits
Chaper 7. esponse of FirsOrder L and C Circuis 7.1. The Naural esponse of an L Circui 7.2. The Naural esponse of an C Circui 7.3. The ep esponse of L and C Circuis 7.4. A General oluion for ep and Naural
More informationEconomics 140A Hypothesis Testing in Regression Models
Economics 140A Hypohesis Tesing in Regression Models While i is algebraically simple o work wih a populaion model wih a single varying regressor, mos populaion models have muliple varying regressors 1
More informationTerm Structure of Prices of Asian Options
Term Srucure of Prices of Asian Opions Jirô Akahori, Tsuomu Mikami, Kenji Yasuomi and Teruo Yokoa Dep. of Mahemaical Sciences, Risumeikan Universiy 111 Nojihigashi, Kusasu, Shiga 5258577, Japan Email:
More informationChapter 6: Business Valuation (Income Approach)
Chaper 6: Business Valuaion (Income Approach) Cash flow deerminaion is one of he mos criical elemens o a business valuaion. Everyhing may be secondary. If cash flow is high, hen he value is high; if he
More informationA Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation
A Noe on Using he Svensson procedure o esimae he risk free rae in corporae valuaion By Sven Arnold, Alexander Lahmann and Bernhard Schwezler Ocober 2011 1. The risk free ineres rae in corporae valuaion
More informationINTRODUCTION TO FORECASTING
INTRODUCTION TO FORECASTING INTRODUCTION: Wha is a forecas? Why do managers need o forecas? A forecas is an esimae of uncerain fuure evens (lierally, o "cas forward" by exrapolaing from pas and curren
More informationA Brief Introduction to the Consumption Based Asset Pricing Model (CCAPM)
A Brief Inroducion o he Consumpion Based Asse Pricing Model (CCAPM We have seen ha CAPM idenifies he risk of any securiy as he covariance beween he securiy's rae of reurn and he rae of reurn on he marke
More informationSPEC model selection algorithm for ARCH models: an options pricing evaluation framework
Applied Financial Economics Leers, 2008, 4, 419 423 SEC model selecion algorihm for ARCH models: an opions pricing evaluaion framework Savros Degiannakis a, * and Evdokia Xekalaki a,b a Deparmen of Saisics,
More informationCHARGE AND DISCHARGE OF A CAPACITOR
REFERENCES RC Circuis: Elecrical Insrumens: Mos Inroducory Physics exs (e.g. A. Halliday and Resnick, Physics ; M. Sernheim and J. Kane, General Physics.) This Laboraory Manual: Commonly Used Insrumens:
More informationLEASING VERSUSBUYING
LEASNG VERSUSBUYNG Conribued by James D. Blum and LeRoy D. Brooks Assisan Professors of Business Adminisraion Deparmen of Business Adminisraion Universiy of Delaware Newark, Delaware The auhors discuss
More informationThe Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of
Prof. Harris Dellas Advanced Macroeconomics Winer 2001/01 The Real Business Cycle paradigm The RBC model emphasizes supply (echnology) disurbances as he main source of macroeconomic flucuaions in a world
More informationSmall and Large Trades Around Earnings Announcements: Does Trading Behavior Explain PostEarningsAnnouncement Drift?
Small and Large Trades Around Earnings Announcemens: Does Trading Behavior Explain PosEarningsAnnouncemen Drif? Devin Shanhikumar * Firs Draf: Ocober, 2002 This Version: Augus 19, 2004 Absrac This paper
More informationMarket Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand
36 Invesmen Managemen and Financial Innovaions, 4/4 Marke Liquidiy and he Impacs of he Compuerized Trading Sysem: Evidence from he Sock Exchange of Thailand Sorasar Sukcharoensin 1, Pariyada Srisopisawa,
More information4. International Parity Conditions
4. Inernaional ariy ondiions 4.1 urchasing ower ariy he urchasing ower ariy ( heory is one of he early heories of exchange rae deerminaion. his heory is based on he concep ha he demand for a counry's currency
More informationChapter 1.6 Financial Management
Chaper 1.6 Financial Managemen Par I: Objecive ype quesions and answers 1. Simple pay back period is equal o: a) Raio of Firs cos/ne yearly savings b) Raio of Annual gross cash flow/capial cos n c) = (1
More informationYTM is positively related to default risk. YTM is positively related to liquidity risk. YTM is negatively related to special tax treatment.
. Two quesions for oday. A. Why do bonds wih he same ime o mauriy have differen YTM s? B. Why do bonds wih differen imes o mauriy have differen YTM s? 2. To answer he firs quesion les look a he risk srucure
More informationPerformance Center Overview. Performance Center Overview 1
Performance Cener Overview Performance Cener Overview 1 ODJFS Performance Cener ce Cener New Performance Cener Model Performance Cener Projec Meeings Performance Cener Execuive Meeings Performance Cener
More informationThe Grantor Retained Annuity Trust (GRAT)
WEALTH ADVISORY Esae Planning Sraegies for closelyheld, family businesses The Granor Reained Annuiy Trus (GRAT) An efficien wealh ransfer sraegy, paricularly in a low ineres rae environmen Family business
More informationRelationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith**
Relaionships beween Sock Prices and Accouning Informaion: A Review of he Residual Income and Ohlson Models Sco Pirie* and Malcolm Smih** * Inernaional Graduae School of Managemen, Universiy of Souh Ausralia
More informationI. Basic Concepts (Ch. 14)
(Ch. 14) A. Real vs. Financial Asses (Ch 1.2) Real asses (buildings, machinery, ec.) appear on he asse side of he balance shee. Financial asses (bonds, socks) appear on boh sides of he balance shee. Creaing
More informationEconomics Honors Exam 2008 Solutions Question 5
Economics Honors Exam 2008 Soluions Quesion 5 (a) (2 poins) Oupu can be decomposed as Y = C + I + G. And we can solve for i by subsiuing in equaions given in he quesion, Y = C + I + G = c 0 + c Y D + I
More informationEstimating TimeVarying Equity Risk Premium The Japanese Stock Market 19802012
Norhfield Asia Research Seminar Hong Kong, November 19, 2013 Esimaing TimeVarying Equiy Risk Premium The Japanese Sock Marke 19802012 Ibboson Associaes Japan Presiden Kasunari Yamaguchi, PhD/CFA/CMA
More informationSupplementary Appendix for Depression Babies: Do Macroeconomic Experiences Affect RiskTaking?
Supplemenary Appendix for Depression Babies: Do Macroeconomic Experiences Affec RiskTaking? Ulrike Malmendier UC Berkeley and NBER Sefan Nagel Sanford Universiy and NBER Sepember 2009 A. Deails on SCF
More informationCan Higher Inflation Be More Stable? Evidence from Japan and the US
Journal of Inernaional Economic Sudies (), No9, 9 6 The Insiue of Comparaive Economic Sudies, Hosei Universiy Can Higher Inflaion Be More Sable? Evidence from Japan and he US Georgios Karras* Universiy
More informationTable of contents Chapter 1 Interest rates and factors Chapter 2 Level annuities Chapter 3 Varying annuities
Table of conens Chaper 1 Ineres raes and facors 1 1.1 Ineres 2 1.2 Simple ineres 4 1.3 Compound ineres 6 1.4 Accumulaed value 10 1.5 Presen value 11 1.6 Rae of discoun 13 1.7 Consan force of ineres 17
More informationCRISES AND THE FLEXIBLE PRICE MONETARY MODEL. Sarantis Kalyvitis
CRISES AND THE FLEXIBLE PRICE MONETARY MODEL Saranis Kalyviis Currency Crises In fixed exchange rae regimes, counries rarely abandon he regime volunarily. In mos cases, raders (or speculaors) exchange
More informationAnalysis of Pricing and Efficiency Control Strategy between Internet Retailer and Conventional Retailer
Recen Advances in Business Managemen and Markeing Analysis of Pricing and Efficiency Conrol Sraegy beween Inerne Reailer and Convenional Reailer HYUG RAE CHO 1, SUG MOO BAE and JOG HU PARK 3 Deparmen of
More informationINTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES
INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES OPENGAMMA QUANTITATIVE RESEARCH Absrac. Exchangeraded ineres rae fuures and heir opions are described. The fuure opions include hose paying
More informationTEMPORAL PATTERN IDENTIFICATION OF TIME SERIES DATA USING PATTERN WAVELETS AND GENETIC ALGORITHMS
TEMPORAL PATTERN IDENTIFICATION OF TIME SERIES DATA USING PATTERN WAVELETS AND GENETIC ALGORITHMS RICHARD J. POVINELLI AND XIN FENG Deparmen of Elecrical and Compuer Engineering Marquee Universiy, P.O.
More informationChapter 4: Exponential and Logarithmic Functions
Chaper 4: Eponenial and Logarihmic Funcions Secion 4.1 Eponenial Funcions... 15 Secion 4. Graphs of Eponenial Funcions... 3 Secion 4.3 Logarihmic Funcions... 4 Secion 4.4 Logarihmic Properies... 53 Secion
More informationPresent Value Methodology
Presen Value Mehodology Econ 422 Invesmen, Capial & Finance Universiy of Washingon Eric Zivo Las updaed: April 11, 2010 Presen Value Concep Wealh in Fisher Model: W = Y 0 + Y 1 /(1+r) The consumer/producer
More informationIndividual Health Insurance April 30, 2008 Pages 167170
Individual Healh Insurance April 30, 2008 Pages 167170 We have received feedback ha his secion of he e is confusing because some of he defined noaion is inconsisen wih comparable life insurance reserve
More informationContrarian insider trading and earnings management around seasoned equity offerings; SEOs
Journal of Finance and Accounancy Conrarian insider rading and earnings managemen around seasoned equiy offerings; SEOs ABSTRACT Lorea Baryeh Towson Universiy This sudy aemps o resolve he differences in
More informationDoes Option Trading Have a Pervasive Impact on Underlying Stock Prices? *
Does Opion Trading Have a Pervasive Impac on Underlying Sock Prices? * Neil D. Pearson Universiy of Illinois a UrbanaChampaign Allen M. Poeshman Universiy of Illinois a UrbanaChampaign Joshua Whie Universiy
More informationWhen Is Growth ProPoor? Evidence from a Panel of Countries
Forhcoming, Journal of Developmen Economics When Is Growh ProPoor? Evidence from a Panel of Counries Aar Kraay The World Bank Firs Draf: December 2003 Revised: December 2004 Absrac: Growh is propoor
More informationState Machines: Brief Introduction to Sequencers Prof. Andrew J. Mason, Michigan State University
Inroducion ae Machines: Brief Inroducion o equencers Prof. Andrew J. Mason, Michigan ae Universiy A sae machine models behavior defined by a finie number of saes (unique configuraions), ransiions beween
More information4.8 Exponential Growth and Decay; Newton s Law; Logistic Growth and Decay
324 CHAPTER 4 Exponenial and Logarihmic Funcions 4.8 Exponenial Growh and Decay; Newon s Law; Logisic Growh and Decay OBJECTIVES 1 Find Equaions of Populaions Tha Obey he Law of Uninhibied Growh 2 Find
More informationImpact of scripless trading on business practices of Subbrokers.
Impac of scripless rading on business pracices of Subbrokers. For furher deails, please conac: Mr. T. Koshy Vice Presiden Naional Securiies Deposiory Ld. Tradeworld, 5 h Floor, Kamala Mills Compound,
More informationWorking Paper No. 482. Net Intergenerational Transfers from an Increase in Social Security Benefits
Working Paper No. 482 Ne Inergeneraional Transfers from an Increase in Social Securiy Benefis By Li Gan Texas A&M and NBER Guan Gong Shanghai Universiy of Finance and Economics Michael Hurd RAND Corporaion
More informationThe Transport Equation
The Transpor Equaion Consider a fluid, flowing wih velociy, V, in a hin sraigh ube whose cross secion will be denoed by A. Suppose he fluid conains a conaminan whose concenraion a posiion a ime will be
More informationA Note on the Impact of Options on Stock Return Volatility. Nicolas P.B. Bollen
A Noe on he Impac of Opions on Sock Reurn Volailiy Nicolas P.B. Bollen ABSTRACT This paper measures he impac of opion inroducions on he reurn variance of underlying socks. Pas research generally finds
More informationSEASONAL ADJUSTMENT. 1 Introduction. 2 Methodology. 3 X11ARIMA and X12ARIMA Methods
SEASONAL ADJUSTMENT 1 Inroducion 2 Mehodology 2.1 Time Series and Is Componens 2.1.1 Seasonaliy 2.1.2 TrendCycle 2.1.3 Irregulariy 2.1.4 Trading Day and Fesival Effecs 3 X11ARIMA and X12ARIMA Mehods
More informationUsefulness of the Forward Curve in Forecasting Oil Prices
Usefulness of he Forward Curve in Forecasing Oil Prices Akira Yanagisawa Leader Energy Demand, Supply and Forecas Analysis Group The Energy Daa and Modelling Cener Summary When people analyse oil prices,
More informationGraduate Macro Theory II: Notes on Neoclassical Growth Model
Graduae Macro Theory II: Noes on Neoclassical Growh Model Eric Sims Universiy of Nore Dame Spring 2011 1 Basic Neoclassical Growh Model The economy is populaed by a large number of infiniely lived agens.
More informationNew Classical Economics. Graduate Macroeconomics I ECON 309 Cunningham
New Classical Economics Graduae Macroeconomics I ECON 309 Cunningham New Classical Economics 1. Acceps model of GE wih no imperfecions. 2. Prices are perfecly flexible, and all markes are permanenly cleared
More informationDebt Accumulation, Debt Reduction, and Debt Spillovers in Canada, 197498*
Deb Accumulaion, Deb Reducion, and Deb Spillovers in Canada, 197498* Ron Kneebone Deparmen of Economics Universiy of Calgary John Leach Deparmen of Economics McMaser Universiy Ocober, 2000 Absrac Wha
More informationJournal of Financial and Strategic Decisions Volume 12 Number 1 Spring 1999
Journal of Financial and Sraegic Decisions Volume 12 Number 1 Spring 1999 THE LEADLAG RELATIONSHIP BETWEEN THE OPTION AND STOCK MARKETS PRIOR TO SUBSTANTIAL EARNINGS SURPRISES AND THE EFFECT OF SECURITIES
More informationMultiprocessor SystemsonChips
Par of: Muliprocessor SysemsonChips Edied by: Ahmed Amine Jerraya and Wayne Wolf Morgan Kaufmann Publishers, 2005 2 Modeling Shared Resources Conex swiching implies overhead. On a processing elemen,
More informationWorking paper No.3 Cyclically adjusting the public finances
Working paper No.3 Cyclically adjusing he public finances Thora Helgadoir, Graeme Chamberlin, Pavandeep Dhami, Sephen Farringon and Joe Robins June 2012 Crown copyrigh 2012 You may reuse his informaion
More informationReporting to Management
CHAPTER 31 Reporing o Managemen Inroducion The success or oherwise of any business underaking depends primarily on earning revenue ha would generae sufficien resources for sound growh. To achieve his objecive,
More informationMonetary Policy & Real Estate Investment Trusts *
Moneary Policy & Real Esae Invesmen Truss * Don Bredin, Universiy College Dublin, Gerard O Reilly, Cenral Bank and Financial Services Auhoriy of Ireland & Simon Sevenson, Cass Business School, Ciy Universiy
More informationJournal of Business & Economics Research Volume 1, Number 10
Annualized Invenory/Sales Journal of Business & Economics Research Volume 1, Number 1 A Macroeconomic Analysis Of Invenory/Sales Raios William M. Bassin, Shippensburg Universiy Michael T. Marsh (Email:
More informationPhillips Curve. Macroeconomics Cunningham
Phillips Curve Macroeconomics Cunningham Original Phillips Curve A. W. Phillips (1958), The Relaion Beween Unemploymen and he Rae of Change of Money Wage Raes in he Unied Kingdom, 18611957, Economica.
More informationHouse Price Index (HPI)
House Price Index (HPI) The price index of second hand houses in Colombia (HPI), regisers annually and quarerly he evoluion of prices of his ype of dwelling. The calculaion is based on he repeaed sales
More informationTHE FIRM'S INVESTMENT DECISION UNDER CERTAINTY: CAPITAL BUDGETING AND RANKING OF NEW INVESTMENT PROJECTS
VII. THE FIRM'S INVESTMENT DECISION UNDER CERTAINTY: CAPITAL BUDGETING AND RANKING OF NEW INVESTMENT PROJECTS The mos imporan decisions for a firm's managemen are is invesmen decisions. While i is surely
More informationFinance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.
Finance and Economics Discussion Series Divisions of Research & Saisics and Moneary Affairs Federal Reserve Board, Washingon, D.C. The Effecs of Unemploymen Benefis on Unemploymen and Labor Force Paricipaion:
More informationWages and Unemployment. 1. PreKeynesian economics. Equilibrium in all markets, FE of labor in labor market equilibrium. 2. Keynes' revolution
Wages and Unemploymen 1. PreKeynesian economics Equilibrium in all markes, FE of labor in labor marke equilibrium 2. Keynes' revoluion 3. Inflaion His ideas developed in he hisorical conex of poswwi
More informationThe Application of Multi Shifts and Break Windows in Employees Scheduling
The Applicaion of Muli Shifs and Brea Windows in Employees Scheduling Evy Herowai Indusrial Engineering Deparmen, Universiy of Surabaya, Indonesia Absrac. One mehod for increasing company s performance
More informationCan Individual Investors Use Technical Trading Rules to Beat the Asian Markets?
Can Individual Invesors Use Technical Trading Rules o Bea he Asian Markes? INTRODUCTION In radiional ess of he weakform of he Efficien Markes Hypohesis, price reurn differences are found o be insufficien
More informationDoes Option Trading Have a Pervasive Impact on Underlying Stock Prices? *
Does Opion Trading Have a Pervasive Impac on Underlying Soc Prices? * Neil D. Pearson Universiy of Illinois a UrbanaChampaign Allen M. Poeshman Universiy of Illinois a UrbanaChampaign Joshua Whie Universiy
More informationPrincipal components of stock market dynamics. Methodology and applications in brief (to be updated ) Andrei Bouzaev, bouzaev@ya.
Principal componens of sock marke dynamics Mehodology and applicaions in brief o be updaed Andrei Bouzaev, bouzaev@ya.ru Why principal componens are needed Objecives undersand he evidence of more han one
More informationMathematics in Pharmacokinetics What and Why (A second attempt to make it clearer)
Mahemaics in Pharmacokineics Wha and Why (A second aemp o make i clearer) We have used equaions for concenraion () as a funcion of ime (). We will coninue o use hese equaions since he plasma concenraions
More informationDYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS
DYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS Hong Mao, Shanghai Second Polyechnic Universiy Krzyszof M. Osaszewski, Illinois Sae Universiy Youyu Zhang, Fudan Universiy ABSTRACT Liigaion, exper
More informationInterest Rates, Inflation, and Federal Reserve Policy Since 1980. Peter N. Ireland * Boston College. March 1999
Ineres Raes, Inflaion, and Federal Reserve Policy Since 98 Peer N. Ireland * Boson College March 999 Absrac: This paper characerizes Federal Reserve policy since 98 as one ha acively manages shorerm nominal
More informationConsumer sentiment is arguably the
Does Consumer Senimen Predic Regional Consumpion? Thomas A. Garre, Rubén HernándezMurillo, and Michael T. Owyang This paper ess he abiliy of consumer senimen o predic reail spending a he sae level. The
More informationCointegration: The Engle and Granger approach
Coinegraion: The Engle and Granger approach Inroducion Generally one would find mos of he economic variables o be nonsaionary I(1) variables. Hence, any equilibrium heories ha involve hese variables require
More informationLongRun Stock Returns: Participating in the Real Economy
LongRun Sock Reurns: Paricipaing in he Real Economy Roger G. Ibboson and Peng Chen In he sudy repored here, we esimaed he forwardlooking longerm equiy risk premium by exrapolaing he way i has paricipaed
More informationUSE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES
USE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES Mehme Nuri GÖMLEKSİZ Absrac Using educaion echnology in classes helps eachers realize a beer and more effecive learning. In his sudy 150 English eachers were
More informationcooking trajectory boiling water B (t) microwave 0 2 4 6 8 101214161820 time t (mins)
Alligaor egg wih calculus We have a large alligaor egg jus ou of he fridge (1 ) which we need o hea o 9. Now here are wo accepable mehods for heaing alligaor eggs, one is o immerse hem in boiling waer
More informationUNDERSTANDING THE DEATH BENEFIT SWITCH OPTION IN UNIVERSAL LIFE POLICIES. Nadine Gatzert
UNDERSTANDING THE DEATH BENEFIT SWITCH OPTION IN UNIVERSAL LIFE POLICIES Nadine Gazer Conac (has changed since iniial submission): Chair for Insurance Managemen Universiy of ErlangenNuremberg Lange Gasse
More informationDEMAND FORECASTING MODELS
DEMAND FORECASTING MODELS Conens E2. ELECTRIC BILLED SALES AND CUSTOMER COUNTS Sysemlevel Model Counylevel Model Easside King Counylevel Model E6. ELECTRIC PEAK HOUR LOAD FORECASTING Sysemlevel Forecas
More information