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Leigh Drake - One of the best experts on this subject based on the ideXlab platform.
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substitution between Monetary Assets and consumer goods new evidence on the Monetary transmission mechanism
Journal of Banking and Finance, 2010Co-Authors: Leigh Drake, Adrian R FleissigAbstract:Abstract This paper presents important new evidence on the Monetary transmission mechanism in the context of the degree of substitution across UK Monetary Assets and consumption goods. Specifically, our empirical results show that durable goods expenditures are a relatively powerful element of the Monetary transmission mechanism with semi-durables consumption having a somewhat smaller impact. Our results also provide an explanation for the “puzzle” that the nominal expenditure share of durables has remained relatively stable in recent years while the real expenditure share has increased dramatically. In addition, this paper demonstrates that the potential bias in substitution estimates from using artificial break-adjusted Monetary data can be reduced by using the relatively new non-break adjusted Monetary data produced by the Bank of England.
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semi nonparametric estimates of currency substitution the demand for sterling in europe
Review of International Economics, 2004Co-Authors: Leigh Drake, Adrian R FleissigAbstract:The paper presents new evidence of significant substitution between European domestic Monetary Assets and foreign holdings of sterling. The finding of significant cross-country currency substitution implies reduced costs of transition towards Monetary union and easier European policy convergence. Elasticities of substitution, using the Morishima measure, are estimated from the semi-nonparametric Fourier flexible form.
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incorporating risky Assets in divisia Monetary aggregates
Bulletin of Monetary Economics and Banking (Buletin Ekonomi Moneter dan Perbankan), 2003Co-Authors: Leigh Drake, Andy Mullineux, Juda AgungAbstract:Capital uncertain or risky Assets are typically excluded from traditional broad Monetary aggregates. Barnett et al (1997), however, extend the Divisia aggregation methodology to incorporate such Assets. In addition, recent evidence provided by Drake et al (1998) suggests that risky Assets are close substitutes for Monetary Assets. This paper constructs “wide” Divisia Monetary aggregates which include risky Assets such as unit trusts (mutual funds), equities and bonds, and contrasts their empirical properties with conventional Divisia and simple sum broad money aggregates. The key finding in the paper is that a “wide” Monetary aggregate, which incorporates unit trusts, exhibits a stable long run and dynamic money demand function, has good leading indicator properties in the context of Granger causality tests, and tends to outperform all other aggregates on the basis of non-nested tests. JEL : E41, C43, E52
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a semi nonparametric approach to the demand for uk Monetary Assets
Social Science Research Network, 2003Co-Authors: Leigh Drake, Adrian R Fleissig, James L SwoffordAbstract:We estimate an asymptotically ideal model of the demand for UK personal sector Monetary Assets. We use data that are consistent with utility-maximizing behaviour, and find that UK Monetary Assets are generally substitutes in use. The estimated elasticities of substitution during the 1980s and the early 1990s indicate that a relatively broad Monetary aggregate should be used in economic studies. The results also suggest that any policy based on interest or user cost elasticities of substitution between financial Assets should be based on the Morishima elasticities, as the Allen-Uzawa calculation can give misleading results.
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are risky Assets substitutes for Monetary Assets
Economic Inquiry, 1999Co-Authors: Leigh Drake, Adrian R Fleissig, Andy MullineuxAbstract:I. INTRODUCTION Financial innovation over the past couple of decades has enhanced the liquidity of many financial Assets, particularly noncapital certain ("risky") Assets. Further, financial Assets previously not regarded as Monetary Assets, such as mutual funds and particularly money market mutual funds, now provide Monetary services such as liquidity and transactions services,(l) Given the increased liquidity of such funds, the question arises as to whether risky Assets are substitutes for capital certain Monetary Assets? If noncapital certain Assets are indeed substitutes for capital certain Assets and are also being used for transactions purposes, then agents may be treating "risky" Assets as money. Although this issue has been addressed in the United States in the context of the addition of bond funds to M2 by for example, Duca [1995], no such research has yet been conducted in the United Kingdom. Including risky Assets in the analysis contradicts the work of Ando and Shell [1975], Spencer [1986, Appendix I, pp. 184-93] and Spencer [1994]. Broadly, they argue that since some nonrisky Assets provide Monetary services, and probability also liquidity, individuals would not hold risky Assets for these purposes.2 In contrast, Hicks [1935] states that falling transaction costs and rising wealth encourages individuals to increase the proportion of risky Assets in portfolio holdings. Most studies generally assume that "risky" Assets fail to provide significant Monetary services and, for example, have been excluded from the asset demand analysis of Barr and Cuthbertson [1991a], Drake, Fleissig, and Swofford [1997] and money demand studies such as Taylor [1987], Belongia and Chrystal [1991], Drake and Chrystal [1994], and Drake [1996]. Alternatively, Barr and Cuthbertson [1991b] use only risky Assets in their asset demand system analysis. The degree of substitution between risky Assets and capital certain Assets is an empirical issue. While noncapital certain (risky) Assets, mutual funds, and other financial Assets may well be becoming closer substitutes for what people are using as money, they are in no way perfect substitutes for the highly liquid "cash Assets." To evaluate the role of noncapital certain Assets we construct a noncapital certain (risky) Divisia aggregate consisting of equities, government bonds, and unit trusts. The Divisia index allows for less than perfect substitution between Assets and weights component Assets according to their differing degrees of "moneyness," which may vary over time due to many factors, for example, financial innovation; see Barnett [1980]. This methodology has been widely applied to Monetary aggregation and money demand studies in a number of countries, as in Belongia [1996], Drake [1996], Drake and Chrystal [1997], and Anderson, Jones, and Nesmith [1997]. To determine whether risky Assets are substitutes for capital certain Assets, we use two other Divisia aggregates constructed from traditional measures of money. The first of these is an aggregate of highly liquid zero yield cash Assets. Given that the component Assets all have zero own rates of return, however, Divisia aggregation is equivalent in this case to simple summation. The second aggregate is a Divisia aggregate of interest bearing capital certain Assets. Including risky Assets complicates the analysis because the degree of risk aversion will affect the estimates of substitution between capital-certain and noncapital certain Assets. Thus, we also analyze how different degrees of risk aversion affect the results. The substitution relationship between Assets is estimated from an asymptotically ideal model (AIM). The choice of an AIM is in line with the recommendation of Barnett, Fisher, and Serletis [1992] that flexible systems of demand equations should be used that allow for nonlinear optimizing behavior by economic agents. Furthermore, this paper can be seen as an extension of the recent application of this model to U. …
Apostolos Serletis - One of the best experts on this subject based on the ideXlab platform.
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the demand for Assets and optimal Monetary aggregation
Social Science Research Network, 2018Co-Authors: Ali Jadidzadeh, Apostolos SerletisAbstract:This paper uses a highly disaggregated demand system to estimate the degree of substitutability among Monetary Assets and to address the issue of optimal Monetary aggregation in the United States. We address the problems of dimensionality and nonlinearity, estimating a very detailed Monetary asset demand system encompassing the full range of Assets based on the locally flexible normalized quadratic (NQ) expenditure function. We treat the concavity property as a maintained hypothesis and provide evidence consistent with neoclassical microeconomic theory. Statistical tests reject the appropriateness of the aggregation assumptions for all the money measures published by the Federal Reserve as well as for a large number of groupings suggested by earlier studies. This supports and reinforces Barnett's (2016) assertion that we should employ the broadest M4 Monetary aggregate published by the Center for Financial Stability.
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semi nonparametric estimates of currency substitution between the canadian dollar and the u s dollar
Macroeconomic Dynamics, 2010Co-Authors: Apostolos Serletis, Guohua FengAbstract:In this paper we investigate the issue of whether a floating currency is the right exchange rate regime for Canada or whether Canada should consider a currency union with the United States. In the context of the framework recently proposed by James L. Swofford, we use a semi-nonparametric flexible functional form—the asymptotically ideal model (AIM), introduced by William A. Barnett and A. Jonas—and pay explicit attention to the theoretical regularity conditions of neoclassical microeconomic theory, following the suggestions of William A. Barnett and William A. Barnett and Meenakshi Pasupathy. Our results indicate that U.S. dollar deposits are complements to domestic (Canadian) Monetary Assets, suggesting that Canada should continue the current exchange rate regime, allowing the exchange rate to float freely with no intervention in the foreign exchange market by the Bank of Canada.
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divisia aggregation and substitutability among Monetary Assets
Research Papers in Economics, 2006Co-Authors: Apostolos Serletis, A RobbAbstract:AbstractThe following sections are included:IntroductionTheoretical FoundationsDemand System SpecificationStochastic Specification and EstimationElasticitiesDataNear-Bank LiabilitiesAggregationAggregation of ComponentsData Sources and AdjustmentsEmpirical Results InterpretationConclusions
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semi non parametric estimates of substitution for canadian Monetary Assets
Social Science Research Network, 2002Co-Authors: Adrian R Fleissig, Apostolos SerletisAbstract:We estimate the dynamic Fourier expenditure system to obtain consistent estimates of short-run and long-run Morishima elasticities of substitution for Canadian liquid Assets. We argue that the variability of the estimated elasticities and evidence of less than perfect substitution between Monetary Assets interferes with the successful use of simple-sum aggregates and traditional log-linear money-demand functions.
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the parametric approach to the demand for Monetary Assets
2001Co-Authors: Apostolos SerletisAbstract:The parametric approach to applied demand analysis involves postulating parametric forms for the utility function and then fitting the resulting demand functions to a finite number of observations on consumer behavior. As we argued earlier, this approach will be satisfactory only when the postulated parametric forms are good approximations to the generating demand functions. Our approach in this chapter addresses the question of how to derive a set of demand functions for Monetary Assets from a framework in which the representative asset holder maximizes the Monetary services utility function f(x), subj ect to the budget constraint. We will state the problem first and then show why and how duality theory might be employed explicitly in the rationalization of estimable demand functions.
Adrian R Fleissig - One of the best experts on this subject based on the ideXlab platform.
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the impact of commercial sweeping on the demand for Monetary Assets during the great recession
Journal of Macroeconomics, 2015Co-Authors: Adrian R Fleissig, Barry E JonesAbstract:Abstract This study investigates how accounting for commercial sweeping affects estimates of elasticities of substitution between Monetary Assets over the period 1991 to 2012 using a Fourier flexible form. On the basis of the Fourier model, we find that adjusting the Monetary data for commercial sweeps leads to higher average estimates for many elasticities of substitution over the sample period. The average value of an elasticity capturing substitution between currency and demand deposits and other checkable deposits nearly doubled when the elasticity was estimated using data that was adjusted for commercial sweeps as compared with unadjusted data. We also find that the share of commercial sweeps relative to total demand deposits eventually ended up lower following each of the past two recessions than it was leading up to them.
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substitution between Monetary Assets and consumer goods new evidence on the Monetary transmission mechanism
Journal of Banking and Finance, 2010Co-Authors: Leigh Drake, Adrian R FleissigAbstract:Abstract This paper presents important new evidence on the Monetary transmission mechanism in the context of the degree of substitution across UK Monetary Assets and consumption goods. Specifically, our empirical results show that durable goods expenditures are a relatively powerful element of the Monetary transmission mechanism with semi-durables consumption having a somewhat smaller impact. Our results also provide an explanation for the “puzzle” that the nominal expenditure share of durables has remained relatively stable in recent years while the real expenditure share has increased dramatically. In addition, this paper demonstrates that the potential bias in substitution estimates from using artificial break-adjusted Monetary data can be reduced by using the relatively new non-break adjusted Monetary data produced by the Bank of England.
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semi nonparametric estimates of currency substitution the demand for sterling in europe
Review of International Economics, 2004Co-Authors: Leigh Drake, Adrian R FleissigAbstract:The paper presents new evidence of significant substitution between European domestic Monetary Assets and foreign holdings of sterling. The finding of significant cross-country currency substitution implies reduced costs of transition towards Monetary union and easier European policy convergence. Elasticities of substitution, using the Morishima measure, are estimated from the semi-nonparametric Fourier flexible form.
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a semi nonparametric approach to the demand for uk Monetary Assets
Social Science Research Network, 2003Co-Authors: Leigh Drake, Adrian R Fleissig, James L SwoffordAbstract:We estimate an asymptotically ideal model of the demand for UK personal sector Monetary Assets. We use data that are consistent with utility-maximizing behaviour, and find that UK Monetary Assets are generally substitutes in use. The estimated elasticities of substitution during the 1980s and the early 1990s indicate that a relatively broad Monetary aggregate should be used in economic studies. The results also suggest that any policy based on interest or user cost elasticities of substitution between financial Assets should be based on the Morishima elasticities, as the Allen-Uzawa calculation can give misleading results.
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semi non parametric estimates of substitution for canadian Monetary Assets
Social Science Research Network, 2002Co-Authors: Adrian R Fleissig, Apostolos SerletisAbstract:We estimate the dynamic Fourier expenditure system to obtain consistent estimates of short-run and long-run Morishima elasticities of substitution for Canadian liquid Assets. We argue that the variability of the estimated elasticities and evidence of less than perfect substitution between Monetary Assets interferes with the successful use of simple-sum aggregates and traditional log-linear money-demand functions.
Andy Mullineux - One of the best experts on this subject based on the ideXlab platform.
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incorporating risky Assets in divisia Monetary aggregates
Bulletin of Monetary Economics and Banking (Buletin Ekonomi Moneter dan Perbankan), 2003Co-Authors: Leigh Drake, Andy Mullineux, Juda AgungAbstract:Capital uncertain or risky Assets are typically excluded from traditional broad Monetary aggregates. Barnett et al (1997), however, extend the Divisia aggregation methodology to incorporate such Assets. In addition, recent evidence provided by Drake et al (1998) suggests that risky Assets are close substitutes for Monetary Assets. This paper constructs “wide” Divisia Monetary aggregates which include risky Assets such as unit trusts (mutual funds), equities and bonds, and contrasts their empirical properties with conventional Divisia and simple sum broad money aggregates. The key finding in the paper is that a “wide” Monetary aggregate, which incorporates unit trusts, exhibits a stable long run and dynamic money demand function, has good leading indicator properties in the context of Granger causality tests, and tends to outperform all other aggregates on the basis of non-nested tests. JEL : E41, C43, E52
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are risky Assets substitutes for Monetary Assets
Economic Inquiry, 1999Co-Authors: Leigh Drake, Adrian R Fleissig, Andy MullineuxAbstract:I. INTRODUCTION Financial innovation over the past couple of decades has enhanced the liquidity of many financial Assets, particularly noncapital certain ("risky") Assets. Further, financial Assets previously not regarded as Monetary Assets, such as mutual funds and particularly money market mutual funds, now provide Monetary services such as liquidity and transactions services,(l) Given the increased liquidity of such funds, the question arises as to whether risky Assets are substitutes for capital certain Monetary Assets? If noncapital certain Assets are indeed substitutes for capital certain Assets and are also being used for transactions purposes, then agents may be treating "risky" Assets as money. Although this issue has been addressed in the United States in the context of the addition of bond funds to M2 by for example, Duca [1995], no such research has yet been conducted in the United Kingdom. Including risky Assets in the analysis contradicts the work of Ando and Shell [1975], Spencer [1986, Appendix I, pp. 184-93] and Spencer [1994]. Broadly, they argue that since some nonrisky Assets provide Monetary services, and probability also liquidity, individuals would not hold risky Assets for these purposes.2 In contrast, Hicks [1935] states that falling transaction costs and rising wealth encourages individuals to increase the proportion of risky Assets in portfolio holdings. Most studies generally assume that "risky" Assets fail to provide significant Monetary services and, for example, have been excluded from the asset demand analysis of Barr and Cuthbertson [1991a], Drake, Fleissig, and Swofford [1997] and money demand studies such as Taylor [1987], Belongia and Chrystal [1991], Drake and Chrystal [1994], and Drake [1996]. Alternatively, Barr and Cuthbertson [1991b] use only risky Assets in their asset demand system analysis. The degree of substitution between risky Assets and capital certain Assets is an empirical issue. While noncapital certain (risky) Assets, mutual funds, and other financial Assets may well be becoming closer substitutes for what people are using as money, they are in no way perfect substitutes for the highly liquid "cash Assets." To evaluate the role of noncapital certain Assets we construct a noncapital certain (risky) Divisia aggregate consisting of equities, government bonds, and unit trusts. The Divisia index allows for less than perfect substitution between Assets and weights component Assets according to their differing degrees of "moneyness," which may vary over time due to many factors, for example, financial innovation; see Barnett [1980]. This methodology has been widely applied to Monetary aggregation and money demand studies in a number of countries, as in Belongia [1996], Drake [1996], Drake and Chrystal [1997], and Anderson, Jones, and Nesmith [1997]. To determine whether risky Assets are substitutes for capital certain Assets, we use two other Divisia aggregates constructed from traditional measures of money. The first of these is an aggregate of highly liquid zero yield cash Assets. Given that the component Assets all have zero own rates of return, however, Divisia aggregation is equivalent in this case to simple summation. The second aggregate is a Divisia aggregate of interest bearing capital certain Assets. Including risky Assets complicates the analysis because the degree of risk aversion will affect the estimates of substitution between capital-certain and noncapital certain Assets. Thus, we also analyze how different degrees of risk aversion affect the results. The substitution relationship between Assets is estimated from an asymptotically ideal model (AIM). The choice of an AIM is in line with the recommendation of Barnett, Fisher, and Serletis [1992] that flexible systems of demand equations should be used that allow for nonlinear optimizing behavior by economic agents. Furthermore, this paper can be seen as an extension of the recent application of this model to U. …
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incorporating riskt Assets in divita Monetary aggregates
Research Papers in Economics, 1998Co-Authors: Leigh Drake, Andy Mullineux, Juda AgungAbstract:Capital uncertain or risk Assets are typically excluded from traditional broad Monetary aggregates. Barnett et al (1997), however, extend the Divisia aggregation methodology to incorporate such Assets. In addition, recent evidence provided by Drake et al (1998) auggests that risky Assets are close substitutes for Monetary Assets. This paper constructs 'wide' Divisia Monetary aggregates which include risky Assets such as unit trusts (mutual funds), equities and bonds, and contrasts their empirical properties with conventional Divisia and simple sum broad money aggregates.
James L Swofford - One of the best experts on this subject based on the ideXlab platform.
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a semi nonparametric approach to the demand for uk Monetary Assets
Social Science Research Network, 2003Co-Authors: Leigh Drake, Adrian R Fleissig, James L SwoffordAbstract:We estimate an asymptotically ideal model of the demand for UK personal sector Monetary Assets. We use data that are consistent with utility-maximizing behaviour, and find that UK Monetary Assets are generally substitutes in use. The estimated elasticities of substitution during the 1980s and the early 1990s indicate that a relatively broad Monetary aggregate should be used in economic studies. The results also suggest that any policy based on interest or user cost elasticities of substitution between financial Assets should be based on the Morishima elasticities, as the Allen-Uzawa calculation can give misleading results.