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Working Paper
The recent financial deregulation and the interest elasticity of the simple M1 demand function : an empirical note
The main objective of this note is to examine whether the interest elasticity of money demand has increased during the last few years. A simple money demand regression that includes additional intercept and slope dummy variables defined over the interval 1981.01 to 1985.03 is estimated for the whole sample period 1961.01-1985.03. The regression results show that the elasticity of money demand with respect to market interest rates has for now increased. No shifts are detected in income and time trend elasticities. The in-sample predictions of the more interest-sensitive money demand regression ...
Journal Article
Real output and unit labor costs as predictors of inflation
Granger-causality tests used here find that: [1] unit labor costs add no predictive power to inflation forecasts; and [2] the gap between actual and potential output does help predict inflation, but only in the short run.
Working Paper
Velocity and the variability of money growth: evidence from Granger- causality tests reevaluated
Hall and Nobel (1987) use the Granger-causality test to show that volatility influences velocity, leading them to conclude that the recent decline in the velocity of Ml is due to increased volatility of money growth which is alleged to be caused by the Federal Reserve's new operating procedures. This note shows that such a conclusion is unwarranted, because the causality result reported in their paper is not robust. When the test is implemented either using first differences of the volatility variable or using the volatility and velocity variables that are based on the broad definition of ...
Journal Article
A forward-looking monetary policy reaction function
Journal Article
The tax effect, and the recent behaviours of the after-tax real rate : is it too high?
Concerns that interest rates are too high have been prevalent throughout the 1980s. Even after adjusting for expected inflation, many people argue that real interest rates are inordinately high by historical standards. Yash Mehra, in his article The Tax Effect and the Recent Behaviour of the After-Tax Real Rate: Is It Too High?, points out that because interest income is taxed, business decisions are based on the after-tax real rate and public concern should focus on this measure of interest rates. Mehra adds to the accumulating evidence that changes in taxes on interest income alter the ...
Journal Article
A Taylor rule and the Greenspan era
Working Paper
A federal funds rate equation
This paper presents evidence that indicates that U.S. interest rate policy during most of the 1980s can be described by a reaction function in which the federal funds rate rises if real GDP rises above trend GDP, if actual inflation accelerates, or if the long-term bond rate rises. Money growth when included in the reaction function is significant, indicating that money also influenced policy. The results presented here however indicate that in recent years the Fed has discounted the leading indicator properties of money. In contrast, the bond rate has been a key determinant of the funds rate ...
Journal Article
Unit labor costs and the price level