Abstract
We measure the economic capital stock of money implied by the Divisia monetary aggregate service flow, in a manner consistent with asset pricing theory. Based on Barnett’s (Monetary policy on the 75th anniversary of the Federal Reserve System, pp. 232–244, Kluwer, Boston, 1991) definition of the economic stock of money, we estimate the expected discounted flow of expenditure on the services of monetary assets, where expenditure on monetary services is evaluated at the user costs of the monetary components. We use forecasts based on martingale expectations, asymmetric vector autoregressive expectations, and the Bayesian vector autoregressive expectations. We find the resulting capital-stock index to be surprisingly robust to the modeling of expectations.
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Barnett, W.A., Keating, J.W. & Chae, U. The Discounted Economic Stock of Money with VAR Forecasting. Annals of Finance 2, 229–258 (2006). https://doi.org/10.1007/s10436-006-0038-y
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DOI: https://doi.org/10.1007/s10436-006-0038-y
Keywords
- Monetary aggregation
- Divisia money aggregate
- Economic stock of money
- User cost of money
- Currency equivalent index
- Bayesian vector autoregression
- Asymmetric vector autoregression