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Working Paper
Are net discount rates stationary?: some further evidence
Gamber and Sorensen provide evidence suggesting that the net discount ratio experienced a level shift in the mean between 1977 and 1981. If such a shift occurred, the nonlinearity in the data shows up as a failure to reject the null hypothesis that a unit root is present; that is, the series is I(1). In this reply, evidence is presented-the Phillips-Perron test and a univariate version of the Stock-Watson q-test-suggesting that the net discount ratio is stationary. Hence, the mean is constant. In addition, if one extends the analysis to include the 1989 through 1993 period, the net discount ...
Journal Article
Monetary aggregates and the rate of inflation
Some economists advocate focusing less emphasis on monetary aggregates because the relationship of monetary aggregates to the ultimate goals of monetary policy is less reliable now than in the past. But the stability of the relationship between money growth and inflation is a testable hypothesis. Joseph Haslag investigates whether money growth is currently as useful a predictor of inflation as it previously has been. He tests three different measures of money growth: the monetary base, M1 and M2. Haslag finds that the relationship remains stable over time. ; Haslag also finds that both the ...
Working Paper
Optimality of the Friedman rule in overlapping generations model with spatial separation
Recent papers suggest that when intermediation is analyzed seriously, the Friedman rule does not maximize social welfare in overlapping generations model in which money is valued because of spatial separation and limited communication. These papers emphasize a trade-off between productive efficiency and risk sharing. We show financial intermediation or a trade-off between productive efficiency and risk sharing are neither necessary nor sufficient for that result. We give conditions under which the Friedman rule maximizes social welfare and show any feasible allocation such that money grows ...
Working Paper
Revenue-maximizing monetary policy
In this paper, we examine the impact that changes in the rate of money creation and reserve requirements have on real seigniorage revenue. We consider two additional features that differ from previous analyses. First, the model economies grow endogenously, and that growth depends on the accumulation of intermediated capital. Second, agents have two means of financing; one is bank deposits against which reserves must be held and the other is a nonbank intermediary. Thus, growth-rate effects and financing-substitution effects are both present, and one can assess the quantitiative importance or ...
Working Paper
Government debt, output, and asymmetric information
Recent explanation of monetary policy and its effect have centered upon a non-cooperative game involving the monetary authority and the private sector. Notably absent from the discussion of asymmetric information and its impact on decision making is fiscal policy. This note examines a simple model where the fiscal authority determines the optimal ratio of permanent to total government debt based on explicit optimizing behavior. Deficit financing can have short-run effects because of uncertainty concerning future fiscal policy. However, in the long run, changes in net private sector wealth due ...
Working Paper
Does it matter how monetary policy is implemented?