Real Quantity Of Money Research Articles

Effects of Macroeconomic Policies and Stock Market Performance on the Estonian Economy

Based on a general equilibrium model, this study finds that real output in Estonia is positively associated with real quantity of money and negatively influenced by real depreciation of the kroon, real stock prices, and the expected inflation rate. Government deficit spending is found to be insignificant. Policy implications are that fiscal discipline pursued by the Estonian government is appropriate, that a stronger currency may better serve Estonia, and that the wealth effect of an increase in the stock price on real money balances is greater than the substitution effect.

Impacts of flexible exchange rates and government debt on output

Based on the IS-LM model and applying the GARCH(m, n) process, the author finds that the depreciation of the Thai baht, more government taxes, or higher domestic debt are expected to reduce real GDP and that an increase in government spending, real quantity of money, world output or foreign debt are expected to raise real output. Therefore, the positive benefits of baht depreciation are outweighed by negative impacts. The negative impact of domestic debt suggests that the government should pursue a responsible fiscal policy in the long run. The VAR model is applied to estimate impulse response functions to trace the shocks of these variables on real GDP.

The Fisher hypothesis revisited: new evidence

The nominal interest rate is examined with the IS-LM model incorporating the Fisher hypothesis. Eight different interest rates are considered for different sample periods ending in 1993. When the Livingston survey data are used, the coefficients for the expected inflation rate, real quantity of money and government spending are significant in most cases. When the adaptive expectations model is applied, the coefficients for real quantity of money and government spending are insignificant in most cases. The Fisher hypothesis only holds for the federal funds rate or the AAA bond rate. The linear-form regression can be rejected at the 1% level in favour of the Box-Cox general functional form.

Interest Rates in a Semiopen Economy: Comment

where i is the domestic nominal interest rate being studied, iw is the foreign nominal interest rate on a comparable instrument, De is the expected rate of devaluation of the domestic currency, t is the risk premium, m is the real quantity of money supplied, md the real quantity of money demanded, and subscripts denote time periods. In turn, the money demand function is specified in Edwards' equation (4) as:

Money and the Stock Market

Quarterly data for the period from 1961 to 1986 suggest that the real quantity of money (defined as M2) demanded relative to income is positively related to the deflated price of equities (Standard and Poor's composite) three quarters earlier and negatively related to the contemporaneous real stock price. The positive relation appears to reflect a wealth effect; the negative, a substitution effect. The wealth effect appears stronger than the substitution effect. The volume of transactions has an appreciable effect on M1 velocity but not on M2 velocity. Annual data for a century suggest that the apparent dominance of the wealth effect is the exception, not the rule.

The Contribution of Real Money Balances to the Level of Wealth

MONETARY THEORISTS IN THE POST-KEYNESIAN PERIOD have been increasingly interested in the contributions that are made by a given real quantity of money to the level of an economy's wealth. Research on this subject has focused on the apparent contribution to wealth that arises from an excess of monetary assets over monetary liabilities in the portfolio of the private sector. The money supply has been designated as outside money and included in measures of wealth when, for example, it is currency directly issued by the government with no offsetting liability in the private sector's balance sheet. It has been designated as inside money, and omitted from many wealth aggregates, when money is the debt instrument of a private financial institution (see Johnson [7], and Patinkin [13] ). Unfortunately, phrasing the issue in this manner has resulted in neglect of the fact that any instrument that is money provides real flows of services independent of whether it is government debt or a liability of a private bank. A complete analysis must thus examine the relation between the real service flow emanating from the money stock and the real resource cost of producing this flow. When an economy opts to accept some debt instrument or commodity as money, it does so because it will be able to enjoy a larger flow of final output than would otherwise be possible; the opportunity set of the community is enlarged. For ex-