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The Discounted Economic Stock of Money with VAR Forecasting

William Barnett (), Unja Chae and John Keating
Additional contact information
Unja Chae: University of Kansas

Macroeconomics from University Library of Munich, Germany

Abstract: We measure the United States capital stock of money implied by the Divisia monetary aggregate service flow, in a manner consistent with the present-value model of economic capital stock. We permit non-martingale expectations and time varying discount rates. Based on Barnett’s (1991) definition of the economic stock of money, we compute the U.S. economic stock of money by discounting to present value the flow of expected expenditure on the services of monetary assets, where expenditure on monetary services is evaluated at the user costs of the monetary components. As a theoretically consistent measure of money stock, our economic stock of money nests Rotemberg, Driscoll, and Poterba’s (1995) currency equivalent index as a special case, under the assumption of martingale expectations. To compute the economic stock of money without imposing martingale expectations, we use forecasts based on the asymmetric vector autoregressive model and the Bayesian vector autoregressive model. We find the resulting capital-stock growth-rate index to be surprisingly robust to the modeling of expectations.

Keywords: monetary aggregation; econommic stock of money; aggregation theory; index number theory; VAR forecasting; wealth effect; Pigou effect; real balance effect; measurement (search for similar items in EconPapers)
JEL-codes: C22 C43 E41 G12 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2005-08-21
Note: Type of Document - pdf; pages: 39. A revised version of this paper will appear in the Annals of Finance
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Related works:
Chapter: The Discounted Economic Stock of Money with VAR Forecasting (2011) Downloads
Journal Article: The Discounted Economic Stock of Money with VAR Forecasting (2006) Downloads
Working Paper: The discounted economic stock of money with VAR forecasting (2006) Downloads
Working Paper: The Discounted Economic Stock of Money with VAR Forecasting (2005) Downloads
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