The Existence of a World Demand for Money Function: Preliminary Results

The Existence of a World Demand-for-Money Function under Fixed and Flexible Exchange Rates: Preliminary Results At a national level a demand-for-money function can be used as a guideline for the effectiveness of monetary policy. Once a quantitative relationship between money stock, income and the interest rate is established, then we can assess the contractionary effect of interest rate increases on money cash balances as well as the necessary expansion of the money stock to given GNP increases. At an international level the pertinence of such a function is relevant only under fixed exchange rates because the currencies are freely convertible and one can virtually talk about a common currency. Although the fixed exchange rate period now belongs to the past, our study is still not of historical importance alone, since it is not unlikely that this practice might reappear in the future. Besides, so long as there are groups of countries, such as E.E.C., which aim at a monetary union at a future date the findings of this paper could be of some importance. Contrary to past studies on the same subject, aggregation remains at the national level although the application of our model relates to a group of ten countries. The specification adopted allows for specific shift variables which represent, in the main, heterogeneities that exist between countries. Also, the sample size is increased to several hundreds of observations which enable us to claim asymptotic properties for our parameter estimates and easy sub-division of the sample in order to test the stability of the function. Our main findings are: firstly, interest rate plays an important role in the world demand-for-money function, especially when expressed by the eurodollar rate. Secondly, both a static and a dynamic formulation are significant, with the latter performing better. Thirdly, the stability of the world demand-for-money function over time and under fixed exchange rates is not to be taken for granted, while under flexible exchange rates it almost breaks down. This implies that world inflation cannot easily be regulated by controlling the world money supply. These results are somewhat in contrast to those obtained by similar studies on the world demand-£ormoney using merely time-series data. The significance of the interest-rate elasticity is obscured in these studies, especially in the simple static model, while the stability of the function cannot readily be tested due to lack of degrees of freedom

Economics as an art of thought: Essays in memory of G.L.S. Shackle

This volume unites scholars from all over the world, and with very different theoretical perspectives. Their chapters probe into typical Shacklean themes of time and money, uncertainty and expectation, and into the roots of G.L.S. Shackle's philosophical and methodological stance

The Dynamic Impacts of Government Expenditure and the Monetary Base on Aggregate Income: The West German Case, 1965 to 1974

Summary The Dynamic Impacts of Government Expenditure and the Monetary Base on Aggregate Income: The West German Case This paper deals with the dynamic impacts of government expenditure and the monetary base on aggregate income; thus some light is thrown on the dynamic paths through which these instruments of economic policy affect the economy in the short run. A simple dynamic macroeconomic model is developed with the money supply being endogenously determined by a short-term rate of interest, the discount rate and the monetary base. The short-term rate of interest is determined by the supply of and demand for money, the latter being a function of the level of income, short-term interest rates and the lagged money stock. The short-term interest rate is assumed to influence the long-term rate via a stable term structure of interest rates. The model further assumes that the level of both construction investment and fixed capital formation is influenced by the long-term interest rate, whereas consumption expenditure is a function of the money stock. The empirical performance of this model is sufficiently satisfactory to obtain a fundamental dynamic equation - which is found to be stable - from which the time paths of the effects of changes in government expenditure and the monetary base on the gross national product are derived. With the exception of the first two quarters, the effect of changes in the monetary base on the gross national product is stronger than that of changes in government expenditure. The latter, though, has a more immediate impact which, however, is dispersed with far greater speed than that of the monetary base

A strategic approach to the euro prospects

Listed as 'Von Hugel Institute working paper no. WP2002-04' on website. Includes bibliographical referencesSIGLEAvailable from British Library Document Supply Centre- DSC:02/43836 / BLDSC - British Library Document Supply CentreGBUnited Kingdo