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Journal ArticleDOI

Measurement Matters: Recent Results from Monetary Economics Reexamined

01 Oct 1996-Journal of Political Economy (The University of Chicago Press)-Vol. 104, Iss: 5, pp 1065-1083
TL;DR: In this article, a simple-sum monetary aggregate is replaced by a Divisia index of the same asset collection, and the results are mixed in the five cases in which the qualitative inference in the original study is reversed.
Abstract: Inferences about the effects of money on economic activity may depend importantly on the choice of a monetary index because simple-sum aggregates cannot internalize pure substitution effects. This hypothesis is investigated by replicating five recent studies that have challenged an aspect of the "conventional wisdom" about the effects of money on aggregate activity. In four of the five cases, the qualitative inference in the original study is reversed when a simple-sum monetary aggregate is replaced by a Divisia index of the same asset collection. The results are mixed in the fifth case.
Citations
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Journal ArticleDOI
TL;DR: In a monetary economy, it is in everyone's private interest to try to get someone else to hold non-interest-bearing cash and reserves as mentioned in this paper. But someone has to hold it all, so these efforts must simply cancel out.
Abstract: In a monetary economy, it is in everyone’s private interest to try to get someone else to hold non-interest-bearing cash and reserves. But someone has to hold it all, so these efforts must simply cancel out. All of us spend several hours per year in this effort, and employ thousands of talented and highly-trained people to help us. These person-hours are simply thrown away, wasted on a task that should not have to be performed at all.

806 citations

Posted Content
TL;DR: In this paper, the same objective situation is represented in nominal terms rather than in real terms, and the payoff information is presented in real-time rather than nominal terms to explain the behavioral importance of money illusion.
Abstract: Money illusion means that people behave differently when the same objective situation is represented in nominal terms rather than in real terms. This paper shows that seemingly innocuous differences in payoff representation cause pronounced differences in nominal price inertia indicating the behavioral importance of money illusion. In particular, if the payoff information is presented to subjects in nominal terms, price expectations and actual price choices after a fully anticipated negative nominal shock are much stickier than when payoff information is presented in real terms. In addition we show that money illusion causes asymmetric effects of negative and positive nominal shocks. While nominal inertia is quite substantial and long-lasting after a negative shock, it is rather small after a positive shock.

311 citations

Journal ArticleDOI
TL;DR: In this article, the authors investigated whether money illusion is a cause of nominal rigidity and monetary non-neutrality, and they concluded that it is not the case, but rather the money illusion itself.
Abstract: This chapter investigates whether money illusion is a cause of nominal rigidity and monetary non-neutrality.

277 citations

Book
01 Jul 2000
TL;DR: Barnett and Serletis as discussed by the authors introduced the idea of index number theory in the context of monetary index number theories and the price of money, and proposed an extension of Index Number Theory to Capitalized Money Stock Aggregation.
Abstract: Preface. Editors' Introduction. Part I: Monetary Index Number Theory and the Price of Money. Section 1.1: Editors' Overview of Part I (W.A. Barnett, A. Serletis). Section 1.2: Derivation of the User Cost of Monetary Services. Section 1.3: The Price of Monetary Services and Its Use in Monetary Index Number Theory. Part 2: Index Number Theory. Section 2.1: Editors' Overview of Part 2 (W.A. Barnett, A. Serletis). Section 2.2: General Index Number Theory. Section 2.3: Monetary Index Number Theory. Part 3: Extensions of Index Number Theory. Section 3.1: Editors' Overview of Part 3 (W.A. Barnett, A. Serletis). Section 3.2: Extensions to Second Moments. Section 3.3: Extensions to Risk. Section 3.3.1. Monetary Aggregation Theory Under Risk. Section 3.3.2 Monetary Index Number Theory Under Risk. Section 3.4: Extensions to Capitalized Money Stock Aggregation. Part 4: Consumer Monetary Aggregation Under Perfect Certainty. Section 4.1: Editors' Overview of Part 4 (W.A. Barnett, A. Serletis). Section 4.2: General Index Number Theory. Part 5: Demand and Supply Side Monetary Aggregation by Firms and Financial Intermediaries. Section 5.1: Editors' Overview of Part 5 (W.A. Barnett, A. Serletis). Section 5.2: Production and Supply Side. Section 5.3: Extensions to Risk. Part 6: Monetary Policy with Exact Monetary Aggregation. Section 6.1: Editors' Overview of Part 6 (W.A. Barnett, A. Serletis). Section 6.2: Monetary Policy. Section 6.3: Macroeconomic Policy. Data Appendix. Section A.1: Editors' overview of appendix (W.A. Barnett, A. Serletis). Section A.2: St. Louis Federal Reserve Bank data. Appendix A. Consolidated references. Index by name. Index by subject.

131 citations

Journal ArticleDOI
TL;DR: This article explored the disconnect of Federal Reserve data from index number theory and found that most recessions in the past 50 years were preceded by more contractionary monetary policy than indicated by simple-sum monetary data.

115 citations

References
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Journal ArticleDOI
TL;DR: In this paper, the authors rationalize certain functional forms of index numbers with functional forms for the underlying aggregator function, and show that a certain family of index number formulae is exact for the "flexible" quadratic mean of order r aggregator functions.

2,273 citations

Journal ArticleDOI
TL;DR: In this article, the incorporation of cyclical phenomena into the system of economic equilibrium theory, with which they are in apparent contradiction, remains the crucial problem of Trade Cycle Theory, and the resolution of this question was regarded as one of the main outstanding challenges to economic research.

1,438 citations

Journal ArticleDOI
TL;DR: This paper argued that the reporting of facts in light of theory fosters the development of theory and argued that dynamic neoclassical macro theory guided the selection of facts to report, and that these facts will foster the further development of this theory.
Abstract: This paper argues that the reporting of facts in light of theory fosters the development of theory Dynamic neoclassical macro theory guided the selection of facts to report The hope is that these facts will foster the further development of this theory A finding is that the price level is countercyclical in the post-Korean War period This finding debunks the myths that the price level is procyclical, with the postwar period being no exception

896 citations

Posted Content
TL;DR: This article found that the spread between the commercial paper rate and the Treasury bill rate consistently contains highly significant information about future movements in real income, and that the cointegration of real income and real money balances with due allowance for the effect of interest rates also deteriorates when the sample extends through the 1980s.
Abstract: Including data from the 1980s sharply weakens the postwar time-series evidence indicating significant relationships between money (however defined) and nominal income or between money and either real income or prices separately. Focusing on data from 1970 onward destroys this evidence altogether. Evidence indicating cointegration of real income and real money balances, with due allowance for the effect of interest rates, also deteriorates when the sample extends through the 1980s. A positive finding is that the spread between the commercial paper rate and the Treasury bill rate consistently contains highly significant information about future movements in real income. Copyright 1992 by American Economic Association.

730 citations

Journal ArticleDOI
TL;DR: In this article, the authors demonstrate a functional equivalence between using real balances as an argument of the utility function and entering money into liquidity costs which appear in the budget constraint, which can be approximately derived from conventional models of money demand, such as the transactions and precautionary models.

658 citations