On the choice of an anchor for the GCC currency: does the symmetry of shocks extend to both the oil and the non-oil sectors?

This paper assesses the costs of forming a monetary union among the Gulf Cooperation Council (GCC) countries by looking at economic linkages within the GCC, and between the GCC and the potential anchors (the US, and major European countries such as France, Germany and Italy) for their proposed new currency. We investigate the importance of the US dollar compared to the Euro by focusing on aggregate demand (AD) and aggregate supply (AS) shock symmetry across these countries. We differentiated between oil and non-oil sector by estimating structural vector autoregression (SVAR) models with a combination of variables: oil output, non-oil output, total output, nominal/real price of oil and overall price level. One set of models was identified with the long-run restrictions of Blanchard and Quah (Am Econ Rev 79(4):655–673, 1989), whereas the set that assesses the robustness of the findings was estimated with the short-run restrictions of Sims (Eur Econ Rev 36(5):975–1000, 1992). We find overwhelming support for AD shock symmetry across the GCC countries and between the GCC and the US, but none for the major European countries with the GCC. Non-oil AS shocks are mostly asymmetric, but oil AS shocks are mostly symmetric when the real price of oil is included. This agrees with the view that GCC countries are subjected to common oil shocks. It also suggests that previous VAR models estimated to pass judgment on the feasibility of monetary union across GCC countries may have suffered from problems of mis-specification if the real price of oil was not considered. We surmise that the US dollar is a better anchor candidate for anchoring the new GCC currency than the Euro, since US monetary policy can at least help smooth demand shocks in these countries.     

The demand for M3 and inflation forecasts: An empirical analysis for Switzerland

The Demand for M3 and Inflation Forecasts: An Empirical Analysis for Switzerland. — This paper argues that money should continue to play an important role in monetary policy even if a central bank pursues a strategy based on inflation forecasts. Within the context of an error correction model, the paper delivers empirical evidence that both the growth rate of the monetary aggregate M3 and the size of excess M3 incorporate useful information with regard to future inflation in Switzerland. This evidence strongly suggests that money should remain an important indicator for monetary policy.     

A generalized multi-country endogenous growth model

The transitional dynamics of open-economy endogenous growth models are largely unexplored. The present paper fills this gap in the literature. By applying the familiar Travis–Dixit–Norman (Dixit and Norman, Theory of International Trade, Cambridge University Press, Cambridge, UK, 1980) approach to a general class of growth models, it provides original results on the transitional dynamics of the multi-country open-economy versions of several prominent special cases, including the models of Romer (J Polit Econ, 94:1002–1037, 1986; J Polit Econ 98:S71–S102, 1990), Lucas (J Monet Econ, 22:3–42, 1988), Grossman and Helpman (Innovation and Growth in the Global Economy. MIT Press, Cambridge, MA, 1991a, Chaps. 3 and 4; Rev Econ Stud 58:43–61, 1991b), Jones (J Polit Econ, 103:759–784, 1995a), and Segerstrom (Am Econ Rev, 88:1290–1310, 1998). This approach also shows that, in the class of models considered, the question of whether or not international economic integration accelerates growth in the long run is equivalent to the question of whether or not scale effects prevail.      

Volatility spillover effects in interbank money markets

Using daily data from 2006 to 2015, this paper applies alternative multivariate GARCH models and a modified version of the spillover index methodology proposed by Diebold and Yilmaz (Int J Forecast 28(1):57–66, 2012) to test the existence of shock and volatility contagion effects across interbank money markets. Overall, we find evidence that money markets are highly interrelated, exhibiting dynamic cross market effects. Moreover, we emphasize the pertinence of conditional covariances and we show that volatility spillovers are time-varying and very responsive to the major economic events, increasing in periods of higher turbulence, which reinforces the importance of closely monitoring the evolution of money markets.     

FDI,Education, and Economic Growth: Quality Matters

In this paper, we revisit the results from the influential study by Borensztein et al. (Journal of International Economics 45:115–135, 1998), which argues that inward foreign direct investment (FDI) promotes the economic growth in a less developed host country only when the host country obtains a threshold level of secondary schooling. Borensztein et al. (Journal of International Economics 45:115–135, 1998) only focus on the quantity of education. We take into consideration both the quantity and the quality of education. We adjust the original schooling data in Borensztein et al. (Journal of International Economics 45:115–135, 1998) by two quality of education indices and re-estimate their model. We find that the complementarity between inward FDI and schooling still exists, but the threshold level of schooling in our study is lower than the threshold calculated in Borensztein et al. (Journal of International Economics 45:115–135, 1998). Our results support the importance of education quality and suggest that with improved quality of education, it does not take as much quantity of schooling, as established in Borensztein et al. (Journal of International Economics 45:115–135, 1998), for inward FDI to have a positive impact on economic growth in the host country.     

Velocity Effects of Increased Variability in Monetary Growth in Egypt: A Test of Friedman's Velocity Hypothesis

Abstract: This paper tests Friedman's hypothesis that increased variability in the growth of money supply causes velocity to decline, using Egyptian data from the period 1960–99. The monetary aggregates M1 and M2 are decomposed into anticipated and unanticipated components and the variability of money growth is computed as the standard deviation of five years of monetary growth rates. Cointegration tests show that there is a statistically significant long‐run relationship between the variability in money growth and velocity, for both M1 and M2. However, while increased variability in the growth of M2 is found to be associated with lower velocity — supporting Friedman's velocity hypothesis — increased variability in the growth of M1 seems to have no influence on velocity, possibly because the definition of M1 has changed over time. The findings also suggest that anticipated movements in M2 volatility are not neutral, in the sense that they do affect velocity. An important implication is that the scope for discretionary monetary policy in Egypt is somewhat circumscribed in the short run. However, if the Central Bank of Egypt were to make its decisions more transparent and pre‐announce its policies, then velocity would be more predictable and monetary policy more potent.     

Do Credit Cards Really Reduce Aggregate Money Holdings?

This paper discusses whether the use of credit cards reduces aggregate money holdings in an economy. Applying and modifying the Baumol-Tobin model (Baumol Quarterly Journal of Economics 66:545–556, 1952 and Tobin Review of Economics and Statistics 38(3):241–247, 1956), it studies how much money a credit card bank would normally maintain to support retail trade, and shows that whether or not the use of credit cards actually reduces the aggregate demand for money depends on how often consumers visit the bank and how long it takes to clear a check. With innovations in the banking industry such as ATMs, online banking, and other electric funds transfer services, the cost of visiting banks (i.e., switching funds between a checkable account and an interest-earning account) is now very low. For the whole economy, as a result, the use of credit cards may not necessarily reduce aggregate money holdings.     

Inflation and Welfare in Latin America

This paper follows Bailey (J Polit Econ 64:93–110, 1956) and Lucas (Econometrica 68:247–274, 2000) and estimates the welfare cost of inflation for 17 Latin American economies. We use annual data, from 1955 to 2000, and recent advances in the field of applied econometrics to estimate the inflation rate elasticity of money demand and report significantly high and differential welfare cost estimates for these economies.     

International Financial Aggregation and Index Number Theory: A Chronological Half-century Empirical Overview

This paper comprises a survey of a half century of research on international monetary aggregate data. We argue that since monetary assets began yielding interest, the simple sum monetary aggregates have had no foundations in economic theory and have sequentially produced one source of misunderstanding after another. The bad data produced by simple sum aggregation have contaminated research in monetary economics, have resulted in needless “paradoxes,” and have produced decades of misunderstandings in international monetary economics research and policy. While better data, based correctly on index number theory and aggregation theory, now exist, the official central bank data most commonly used have not improved in most parts of the world. While aggregation theoretic monetary aggregates exist for internal use at the European Central Bank, the Bank of Japan, and many other central banks throughout the world, the only central banks that currently make aggregation theoretic monetary aggregates available to the public are the Bank of England and the St. Louis Federal Reserve Bank. No other area of economics has been so seriously damaged by data unrelated to valid index number and aggregation theory. In this paper we chronologically review the past research in this area and connect the data errors with the resulting policy and inference errors. Future research on monetary aggregation and policy can most advantageously focus on extensions to exchange rate risk and its implications for multilateral aggregation over monetary asset portfolios containing assets denominated in more than one currency. The relevant theory for multilateral aggregation with exchange rate risk has been derived by Barnett (J Econom 136(2):457–482, 2007) and Barnett and Wu (Ann Finance 1:35–50, 2005).

Money growth volatility and the demand for money in Germany: Friedman’s volatility hypothesis revisited

Money Growth Volatility and the Demand for Money in Germany: Friedman’s Volatility Hypothesis Revisited. — Recently, the Bundesbank claimed that monetary targeting has become considerably more difficult by the increased volatility of short-term money growth. The present paper investigates the impact of German money growth volatility on income velocity and money demand in view of Friedman’s money growth volatility hypothesis. Granger-causality tests provide some evidence for a velocity/volatility linkage. However, the estimation of volatility-augmented money demand functions reveals that — in contrast to Friedman’s hypothesis — increased money growth volatility lowered the demand for money.     

Is U.S. money causing China's output?

This paper tries to answer the long-standing question of whether money causes output. Instead of focusing on domestic monetary policy and output, we analyze U.S. monetary policy and its possible effects on real output in China. Our results indicate that the main monetary instrument in the U.S., the Federal Fund Rate, Granger causes China's output. A second monetary variable, U.S. money supply, does not seem to have a significant effect on China's output. The results are supported by variance decompositions, which indicate that Federal Fund Rate shocks have an effect on China's real output. The findings have important implications for policy makers in China that focus on maintaining a high and stable economic growth.     

政府支出与经济波动——基于省级面板数据的实证分析

政府支出能否起到稳定经济增长的作用是一个值得研究的重要问题。使用1987-2013年30个省市自治区的面板数据,文章考察了政府支出对我国经济波动的影响。在考虑政府支出规模的内生性后,2SLS估计结果发现政府支出对经济波动的影响具有两面性。一方面政府支出规模主要发挥了财政自动稳定器作用,因而减少了经济波动;另一方面,政府支出变动对总量产出冲击较大,从而增加了经济波动。进一步控制了贸易开放、通货膨胀、货币政策冲击、金融发展和产业结构等因素,估计结果表现出较好的稳健性。研究结论意味着,在保持经济稳定增长方面,需要权衡政府支出规模与政府支出变动对经济波动的影响。     

What do we really know about fiscal sustainability in the EU? A panel data diagnostic

We assess the sustainability of public finances in the EU-15 over the period 1970–2006 using stationarity and cointegration analysis. Specifically, we use panel unit root tests of the first and second generation allowing in some cases for structural breaks. We also apply modern panel cointegration techniques developed by Pedroni (Oxf Bull Econ Stat 61(1):653–670, 1999; Econom Theory 20(3):597–625, 2004), generalized by Banerjee and Carrion-i-Silvestre (Cointegration in panel data with breaks and cross-section dependence, European Central Bank, Working Paper 591, 2006) and Westerlund and Edgerton (Econ Lett 97(3):185–190, 2007), to a structural long-run equation between general government expenditures and revenues. While estimations point to fiscal sustainability being an issue in some countries, fiscal policy was sustainable both for the EU-15 panel set, and within sub-periods (1970–1991 and 1992–2006).     

The Lack of International Consumption Risk Sharing: Can Inflation Differentials and Trading Costs Help Explain the Puzzle?

The bulk of evidence on the lack of international risk sharing is based on regressions of idiosyncratic consumption growth on idiosyncratic output growth. This paper argues that the results from such regressions obtained from international data are, however, not directly comparable to those based on regional data: the standard practice of running such regressions on international data fails to account for persistent international differentials in consumer prices, whereas—implicitly—most of the literature based on regional data has accounted for these differences. When risk sharing regressions are set up in conceptually the same way in international and regional data sets, the estimated coefficients are also very similar. To explore this result further, we adapt the variance decomposition of Asdrubali et al. (Q J Econ 111:1081–1110, 1996) to allow for deviations from purchasing power parity across countries. While quantity (income and credit) flows are the dominant channel of risk sharing among regions, relative consumption and output price (internal terms of trade) fluctuations account for the bulk of the deviation from the complete markets outcome in international data. To the extent that persistent differences in consumer prices are an indication of goods market segmentation, our findings provide empirical evidence for the proposition by Obstfeld and Rogoff (NBER Macroeconomics Annual 2000, 2000) that segmented international goods markets rather than asset market incompleteness may account for the (apparent) lack of risk sharing between countries.

Strategic Interactions Among Central Bank and National Fiscal Authorities in a Monetary Union Subject to Asymmetric Country Shocks

In this paper we extend Nordhaus’ (Brookings Pap Econ Act (2):139–199, 1994) results to an environment which may represent the current European situation, characterised by a single monetary authority and several fiscal bodies. We show that, even assuming that the monetary and the fiscal authorities share the same ideal targets, in the presence of asymmetric shocks the “symbiosis” result found by Dixit and Lambertini (J Int Econ 60:235–247, 2003) no longer obtains. Thus, fiscal rules as those envisaged in the Maastricht Treaty and in the Stability and Growth Pact may work as monetary/fiscal coordination devices that improve welfare. The imposition of common targets, however, may work as a substitute for policy coordination only if these are made state contingent, an aspect that the recent version of the Stability and Growth Pact takes into account in a more appropriate way than its original version.

Die internationalen auswirkungen nationaler geldpolitischer ma\nahmen

Summary The International Effects of National Monetary Policies. — In this paper, a dynamic two-country model with sluggish price adjustment, flexible exchange rates, perfect capital mobility and rational expectations with respect to the rate of change of the exchange rate is discussed. It is shown that both a once-and-for-all increase in the level of the national money stock and the rate of national monetary growth have no effects on foreign real output and the foreign inflation rate in the long run equilibrium. This result is independent of the degree of wage indexation in the home and foreign country. On the other side, a national monetary growth policy has permanent effects on national output if national nominal wages are not fully indexed. Finally, the problem of international monetary policy coordination is discussed.

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Résumé Les effets internationaux de la politique monétaire nationale. — Dans cette étude on discute un modèle dynamique à deux pays avec un ajustement ralenti des prix, des cours de change flexibles, une mobilité parfaite des capitaux et des expectatives rationnelles concernant le taux des variations du cours de change. Il est montré que le niveau de la quantité de monnaie nationale et le taux de l’accroissement monétaire, augmentés une fois pour toutes, produisent aucun effet sur l’output réel et le taux d’inflation à l’étranger dans l’équilibre à long terme. Ce résultat est indépendant du dégré de l’indexation des salaires au pays d’origine et à l’étranger. De l’autre c?te, une politique de l’accroissement monétaire dans un pays produit des effets permanents sur l’output national si les salaires nationaux nominaux ne sont pas complètement indexés. Enfin, cette étude discute le problème de la coordination internationale de la politique monétaire.

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Resumen Los efectos internacionales de las politicas monetarias nacionales. — Eneste trabajo se discute un modelo dinámico de dos paises con ajuste lento de precios, tasas de cambio flexibles, mobilidad de capital perfecta y expectativas racionales con respecto a los movimientos de la tasa de cambio. Se demuestra que tanto un aumento único del stock nacional de dinero como la tasa de crecimiento de la oferta monetaria no tienen efectos sobre el producto real extranjero y la tasa de inflation extranjera en el equilibrio de largo plazo. Este resultado es independiente del grado de indexación de salarios en ambos paises. Por otro lado, una politica nacional de crecimiento de la oferta monetaria tiene efectos permanentes sobre el producto nacional si los salarios nominales nacionales no están completamente indexados. Al final del trabajo se discute el problema de la coordination internacional de la politica monetaria.

     

Why Money Matters: A Fourth Natural Experiment

Milton Friedman (J Econ Perspect 19(4):145–150, 2005; Wall St J November 17, 2006:A20) compared the behavior of money supply, nominal income and stock prices in the United States during the course of the 1920s and early 1930s with behavior in two other historical episodes, Japan in the 1980s and early 1990s and the United States in the 1990s and early 2000s. The three episodes, he argued, provided a natural experiment to test his and Anna J. Schwartz’s explanation of the Great Depression of the 1930s. I use similar data for the U.S. recession that began in the fourth quarter of 2007 as a fourth such natural experiment. What makes this episode particularly interesting are the continuing comparisons between it and the Great Depression that have been made as events unfolded. The results are clear-cut. In the recent recession, like the U.S recessions at the start of this century and the Japanese recession in the 1990s, there were no severe monetary shocks of the sort experienced in the 1930s. This recession, again like the other two, has been very much milder, and very likely will prove very much shorter than the Great Depression. This, in turn, is exactly what the Friedman and Schwartz hypothesis predicts.     

Effect of Money Supply on Real Output and Price in China

Over the past 30 years, China has achieved remarkable long-term economic growth. Using quarterly data, we study the effects of money supply on real output and inflation in China between 1993 and 2008. To this end, we use money supply shocks afler filtering out the expected component of the money supply. Our findings provide evidence supporting the asymmetric effect of positive and negative money supply shocks on real output and inflation in China. That is, real GDP growth in China responds to negative money supply shocks but not positive money supply shocks. In addition, inflation responds to positive money supply shocks but not negative money supply shocks. We conclude that the People＇s Bank of China＇ s policy of steady monetary growth appears to be appropriate. Our study offers important policy implications for China.     

The Assessment: The New Economy

The remarkable economic success of the United States in the1990s led many observers to talk about a ‘New Economy’.This paper provides an overview of the main issues, includingfaster productivity growth, the stability of inflation despitevery low unemployment, the reduction in output volatility, therole of monetary policy, and the boom in the stock market. Thepaper also considers whether or not the acceleration in productivitygrowth can be sustained, and the possible implications for therest of the world.     

Hot Money and Business Cycle Volatility： Evidence from China

This paper investigates the link between hot money and business cycle volatility in China from January 1997 to December 2009. Using the structural vector error correction model we find a considerable degree of long-run cointegration and bidirectional causality effects between hot money and business cycle volatility. The speculative shocks are found to temporarily promote China＇s economic growth, but also to exacerbate business cycle volatility. The liquidity shock stemming from hot money is shown to be the primary factor responsible for the significantly enhanced fluctuation in business cycles during the most recent global financial crisis period This could be detrimental to the smooth operation of financial markets. Therefore, informing future policies, it is critical for policy-makers to take precautions against the speculative factors.