PIV Analysis of Ludwig Prandtl's Historic Flow Visualization Films

Around 1930 Ludwig Prandtl and his colleagues O. Tietjens and W. M\"uller published two films with visualizations of flows around surface piercing obstacles to illustrate the unsteady process of flow separation. These visualizations were achieved by recording the motion of fine particles sprinkled onto the water surface in water channels. The resulting images meet the relevant criteria of properly seeded recordings for particle image velocimetry (PIV). Processing these image sequences with modern PIV algorithms allows the visualization of flow quantities (e.g. vorticity) that were unavailable prior to the development of the PIV technique. The accompanying fluid dynamics video consists of selected original film sequences overlaid with visualizations obtained through PIV processing.Comment: Contribution to the "Gallery of Fluid Motion", 63rd Annual APS-DFD Meeting 2010, Long Beach (CA

Money and inflation in the euro area during the financial crisis

This paper explores the stability of the relation between money demand for M3 and inflation in the euro area by including the recent period of the financial crisis. Evidence is based on a cointegration analysis, where inflation and asset prices are allowed to enter the long run relationship. By restricting the cointegrating space, equations for money and inflation are identified. The results indicate that the equilibrium evolution of M3 is still in line with money demand. In the long run, inflation is affected by asset prices and detrended output. Excess liquidity plays an important role for inflation dynamics. While the hypothesis of weak exogeneity is rejected for real money balances and inflation, real income, real asset prices and the term structure do not respond to deviations from the long run equilibria. A single equation analysis derived from this system still provides reliable information for the conduct of monetary policy in real time, since the error correction terms are very similar to those obtained by the system approach. To monitor the monetary development, a single money demand equation is sufficient, at least as a rough indication. --Money demand,inflation,excess liquidity,cointegration analysis

Liquidity and Asset Prices: How Strong Are the Linkages?

The appropriate design of monetary policy in integrated financial markets is one of the most challenging areas for central banks. One hot topic is whether the rise in liquidity in recent years has contributed to the formation of price bubbles in asset markets. If strong linkages exist, the inclusion of asset prices in the monetary policy rule can eventually limit speculative runs and negative effects on the real economy in the future. We explore the impacts of liquidity shocks on real share and house prices and the influence of wealth prices on liquidity. VAR models are specified for the US and the euro area. To control for international spillovers, global VARs are also considered. Differences in the results can provide a measure on the impact of financial market integration. The specifications point to some impact of liquidity shocks on house prices, while asset prices are not affected.Liquidity shocks, asset prices, GVAR analysis, monetary policy

Money Velocity and Asset Prices in the Euro Area

Monetary growth in the euro area has exceeded its target since several years. At the same time, the money demand function seems to be increasingly unstable if more recent data are used. If the link between money balances and the macroeconomy is fragile, the rationale of monetary aggregates in the ECB strategy has to be doubted. In fact, a rise in the income elasticity after 2001 can be observed, and may reflect the exclusion of real and financial wealth in conventional specifications of money demand. This presumption is explored by means of a cointegration analysis. To separate income from wealth effects, the specification in terms of money velocity is preferred. Evidence for the presence of wealth in the long run relationship is provided. In particular, both stock and house prices have exerted a negative impact on velocity after 2001 and lead to almost identical equilibrium errors. The extended error correction model is stable over the entire sample period and survive a battery of specification tests.Cointegration analysis, error correction, money demand, financial wealth, monetary policy

Delta-neutral volatility trading with intra-day prices: an application to options on the DAX

This paper evaluates the profitability of applying four different volatility forecasting models to the trading of straddles on the German stock market index DAX. Special care has been taken to use simultaneous intra-day prices and realistic transaction costs. Furthermore, straddle positions were evaluated on a daily basis to preserve delta neutrality. The four models applied in this paper are: historical volatility, two ARCH models, and an autoregressive model for the volatility index. VDAX. The ARCH models perform best in generating profits for market makers. Forecasts based on historical volatility also produce statistically and economically significant profits over the two-year simulation period of 1993 and 1994. In general, a filter1rule with a small filter of0.5 per cent produces the best results for both the ARCH models and historical volatility. However, the VDAX-AR model generates much lower and usually insignificant profits, and for some filter rules this model even has cumulative losses for market makers. For non-market-makers and non-members of exchange, however, larger transaction\costs imply that no significant profits can be gained with any model of volatility forecasts. --

Money Demand and the Role of Monetary Indicators in Forecasting Euro Area Inflation

This paper examines the forecasting performance of a broad monetary aggregate (M3) in predicting euro area inflation. Excess liquidity is measured as the difference between the actual money stock and its fundamental value, the latter determined by a money demand function. The out-of sample forecasting performance is compared to widely used alternatives, such as the term structure of interest rates. The results indicate that the evolution of M3 is still in line with money demand even in the period of the financial and economic crisis. Monetary indicators are useful to predict inflation at the longer horizons, especially if the forecasting equations are based on measures of excess liquidity. Due to the stable link between money and inflation, central banks should implement exit strategies from the current policy path, as soon as the financial conditions are expected to return to normality.Money demand, excess liquidity, money and inflation

M3 Money Demand and Excess Liquidity in the Euro Area

Money growth in the euro area has exceeded its target since 2001. Likewise, recent empirical studies did not find evidence in favour of a stable long run money demand function. The equation appears to be increasingly unstable if more recent data are used. If the link between money balances and the macroeconomy is fragile, the rationale of monetary aggregates in the ECB strategy has to be doubted. In contrast to the bulk of the literature, we are able to identify a stable long run money demand relationship for M3 with reasonable long run behaviour. This finding is robust for different (ML and S2S) estimation methods. To obtain the result, the short run homogeneity restriction between money and prices is relaxed. In addition, a rise in the income elasticity after 2001 is taken into account. The break might be linked to the introduction of euro coins and banknotes. The monetary overhang and the real money gap do not indicate significant inflation pressures. The corresponding error correction model survives a battery of specification tests.Cointegration analysis, error correction, excess liquidity, money demand, monetary policy