Monetary Economics

Monetary Economics

  • Makram El-Shagi added an answer:
    Is there any country that follows the divisia monetary aggregate targeting ?

    Empirical research shows that divisia monetary targeting is better than simple sum monetary targeting. Which of the countries is now following divisia monetary targeting? 

    Makram El-Shagi

    There is no country following Divisia targetting.  Evidence on the superiority of Divisia is usually obtained through some sort of counterfactual analysis. Some central banks do however collect the data (including - occasionally - the Fed, and the Bank of England). So someone might be inofficially paying attention.

  • David O. Cushman added an answer:
    Time series econometrics question?


    I am running a SVAR model with 3 external variables (oil prices, fed rate, global growth rate) and 6 domestic macrovariables. I want to treat the 3 external variables as exogenous in my study. What are the ways of doing it in my model?

    David O. Cushman

    The ordering of the variables in the standard reduced form VAR has nothing to do with exogeneity. It imposes an assumption to achieve identification of orthogonal shocks to the endogenous variables for computing impulse responses, etc.. In the realm of cointegration, weak exogeneity can be imposed or trested by restricting the error correction parameters for the relevant variables to zero in the VECM. Strongly exogenous variables are treated the same as constants and trends in a VAR. At least some econometric programs allow for such variables beyond constants and trends. It is also a possibility in cointegration VARs (VECMs), for example, in CATS in RATS.

  • Peter Samuels added an answer:
    Is anyone aware of any studies of the impact of monetization on numeracy levels and characteristics in a population?

    I would be interested in studies from any discipline.

    Peter Samuels

    Dear Brett, have you heard of the ROSE survey by Sjoberg and Schriener? Their headline finding was countries with higher HDI scores had lower interest in learning science by 15 year olds.

  • Kenan Lopcu added an answer:
    How is the result of NG PERRON interpreted and when do we apply it most?

    I want to know hw best to use NG PERRON in interpretation

    Kenan Lopcu

    Here is a practical answer: 

    The null is unit root. If the NG-Perron test statistics (There are four) smaller than the critical value you reject the null hypothesis (Same as ADF though two of the tests critical values are positive but you stiil reject the null if your test statistic is smaller than the critical value)  . Costant and trend or just a constant can be included in the tests.   

    Check below articles for examples where we used N.G._Perron tests. 

    Lopcu, K., Burgac, A., & Dulger, F. (2012). Can Productivity Increases Really Explain the Lira Appreciation: Questions for the Central Bank of the Republic of Turkey. Topics in Middle Eastern and North African Economies, electronic journal, Volume 14, Middle East Economic Association and Loyola University Chicago, September, 2012,

    Lopcu, Kenan, Fikret Dülger, and Almıla Burgaç. "Relative productivity increases and the appreciation of the Turkish lira." Economic Modelling 35 (2013): 614-621.

    Hope it helps.

  • Peter V. Bias added an answer:
    Is there a difference between any goods, any products, and money at all?
    Physically there seems to be NO difference at all between any kind of goods and money. Both can have a physical (matter based) body or can be an electronical set of data. In principle all kind of goods can be used as money. This is valid for each form of money in history. Even living animals like goats and cows could be put into both definitions. I really see a problem to define the difference in physical terms. It is nothing but a simple convention - which can vary from one moment to another?
    Peter V. Bias

    I need to weigh in again. First, I'm not surprised that there is an inverse relation between stock prices and interest rates given that the returns compete against one another as substitutes; but interest rates are not the price or cost of money, the amount of goods and services they can garner is.

    To Olaf's original point, it very well might be true that anything can be (and pretty much has been) used as money. But all those "monies" met the three functional criteria I mentioned earlier. These functions are especially vital now. No commodity goods exist anymore. Fiat paper and electronic money rules. So, what money does is what money is: a means to keep track of and measure the values of all of the innumerable trades that take place.

  • Peter V. Bias added an answer:
    Couldn't the Fed have provided the entire TARP relief, as opposed to leaving taxpayers on the hook via US Treasury purhcases of toxic assets?

    After all, US fed lending totaled 2 trillion dollars through the discount window, at nearly zero addition to quantitative easing...

    Peter V. Bias

    My argument is that growth is an increase in production possibilities. Re-employing workers is not growth, it's catch up. I agree that you can get people employed. Build a pyramid - but that's not  necessarily growth. We don't need crowding out or NAIRU for this statement. If an economy is going to truly grow, aggregate demand is not the workhorse.

    And I still say there's no free lunch. Somewhere, somehow, somebody is going to pay for indebtedness. I don't see how one can avoid it.

    I'm open for reading suggestions if you have any.

  • Peter V. Bias added an answer:
    How can we compare Mundell's optimal currency area theory with the optimal seigniorage theory?
    Joshua Aizenman produced two papers on optimal seigniorage in 1992.
    Peter V. Bias

    Given that these are quite different concepts I'm not sure what you're trying to determine. Optimal seigniorage is usually optimal only for the entity (usually government) that is developing the money itself. Optimal currency areas are usually concerned with the optimizing for economic success. These two don't seem to mesh that well. I'm curious what you're going for here.

  • Peter V. Bias added an answer:
    Which theory of money is more acceptable: the representative or fiat?
    Are the two concepts mutually exclusive?
    • [Show abstract] [Hide abstract]
      ABSTRACT: This book wishes to be a “history”, as very aware that it isn’t by far the first called like that. By being a “history” this book sees facts in their chronological order. But, certainly, not only, as time as this kind of a criterion applied would limit to seeing diverse money signs throughout the world and this kind of history would easily have turned into a numismatic description, be it followed by some corresponding reflections. On the contrary, facts described (here and there highlighted by “related history” titles) rather associate to concepts and scientific debate on money and its developments. So, this story becomes a monetary economics and related history attached paper. It starts by: ‘what has been before the money-based economy?’ in its ‘Part one’ and ends in: ‘the post-gold and contemporary money era’, as in its ‘Part five’. So, it is already understood that the historical dimension of this paper equally prefers to extend back into the ‘pre-money’ times that sources to be researched for prove not too much available. Concepts like barter, natural economy and gift economy come to associate with the ones surrounding money. Parts ‘one’ and ‘two’ are especially for reviewing the old description of barter. It is the time to reject a whole scientific prejudice for which barter was just “preparing the money’s historical appearance”; barter comes to be seen in two different and successive eras: the one related to ancient communities (part one); the other, much more opened, searching for money-value appropriate standards (commodity money) and this for an unprecedented opening trade (part two); a simple mathematical model here proposed is intended to provide more about. ‘Part three’ finally comes to join the money concept in its primitive, versus modern forms, plus the Middle Ages add to the previous (parts) ancient history descriptions. The economic skilled reader here “finds out” that, despite the major significance of the quantitative theory (highly developed in the literature), the money’s long run history prefers to focus on a different (i.e. ‘qualitative’) debate, as priory significant: the one between representative (roughly, metal-based and coined), versus fiat (roughly, conventional value) money. ‘Part four’ meets what is really the most significant in the world money history, meaning the ‘gold standard’, as international. Its history seems to push the appearance of representative money achieved and the gold metal becomes a money-value standard as resulting from an artificial selection and market competition with other similar (market) commodity items for such a ‘privileged’ position. The same history shows how an apparently primitive value standard penetrates the modern world of money and finance, proves its very peculiar qualities of price stability and international extension, as a modern monetary system, but finally goes bankrupted together of all bankruptcies of the big 1929-1933 economic crisis. Finally, ‘Part five’ gathers all facts since the early thirties that regard the money matter, despite that such a relatively short historical interval passed through a tremendous amount of facts. First, there came a transitory post-gold standard proving what a non-monetary order was supposed to provide, as compared to its opposite and previous environment. Then, another international monetary system (IMS) that was the Bretton-Woods International Agreement (1944) was attempted and its international arrangement lied about two and a half decades (roughly, less than a half of the gold standard era). The new bankruptcy of an IMS seemed to share the same excessive exchange rates floating symptom and was at least confirming the complexity of the money and monetary issues of both earlier and modern-contemporary times, plus specific differences between. But even the contrary: the mid-eighties seemed to feed the idea that the international money didn’t necessary need once more the “old style” IMS remaking for tempering exchange rates floating and so having the monetary order back into the international area. More issues, like international currency areas and their optimality, monetary unions and finally the European story of the common regional currency shared by several national areas all come to be considered within this last ‘Part five’ and all similarly look confirming fiat money, as the ‘new’ and/or ‘true’ money. Ultimately, this paper keeps aware of another double truth: the one that it wasn’t able to exhaust a topic like this and that is why it hadn’t even intended it, as previously. It might be even about one thing that keeps confused: is that money representative or fiat? It looks like the gold standard was once ending a long history of representative money, then ‘money out of its previous metal base’ that is the fiat money came in place instead for good. But this paper doesn’t argue this way; on the contrary, the money seigniorage was present since the primitive ancient times, the Roman laws of money issuance were really harsh for people who were refusing those coins, and both these belong to fiat money – in an obviously representative money environment; on the contrary, the today non-monetary gold is still ‘kept in custody’ by banks and treasuries as a ‘representative’ reserve, the market liquidity extends through the simple representative money procedure, the banking compulsory reserves procedure belongs to the today central banking based system, but these all equally belong to representative money in a fully fiat money environment. ‘Money is endless story…and history’ might become the very motto of this book.
      first one 01/2011;
    Peter V. Bias

    Interesting question. Of course almost every country has evolved to use fiat money after having used representative earlier. And most have prospered and moved on without a hitch. All money is ultimately "Monopoly money" (both rep and fiat) because its acceptance is how the game is played. Either type will fail if mismanaged and either type will succeed if the supply is controlled and everybody still wants to "play."

    Not sure exactly what you're looking for here, Liviu. I see you've been at this a while and probably have addressed this yourself. Just looking for conversation or do you have a paper you're working on?

  • John Robert Hawkins added an answer:
    How to convert currency from past years in recent scientific publications?

    Currency in my home country has begin fluctuating a lot and every time I have to convert values in dollar or pounds they changes a lot. Is there any standard for converting currency from past in recent scientific publication? 

    John Robert Hawkins

    international comparisons using exchange rates are excessively volatile. A better approach is to use measures of the more stable 'purchasing power parities'. These are calculated as part of the International Comparison Programme and can be found in OCED and IMF publications.

  • Constantinos Alexiou added an answer:
    How can Greece repel austerity without abandoning the Euro and the Eurozone?

    Without forming a national central bank of its own, and thus reestablishing its own currency, how can Greece escape neo-liberal structural adjustment?

    Constantinos Alexiou

    The question that you should be asking is as follows:  When the strong (in nominal terms) advanced economies that advocate vehemently the euro-straight jacket will stop feeding a terminally ill patient (Greece)? If you manage to answer this then you should be able to explain the concept of economic growth in the context of morbid capitalism....... 

  • Ho-Chuan Huang added an answer:
    Anyone familiar with estimation of Parameters Using Rigobon(2003) Identification Method?


    We want to estimate the simultaneous equation system using GMM using the identification method proposed by Rigobon (2003). 

    Summary of this method is, for rank order condition the system is under identified but he assume that the variance of error have at least two regimes. Through this assumption he estimates the required parameters using GMM.

    Any body can help in this regard? If any one knows in which software this procedure is implemented or if you have code please provide us.

    Thanks in advance


    Ho-Chuan Huang

    If you are estimating two-equation and only two-equation system using heteroskedasticity-based identification approach, try alternative techniques (It is more difficult to modify Rigobon's Gauss code): “Using Heteroscedasticity to Identify and Estimate Mismeasured and Endogenous Regressor Models,” by Arthur Lewbel, Journal of Business and Economic Statistics 2012, 30, 67-80. A free-to-download and easy-to-use Stata command "ivreg2h" can be implemented to estimate a two-equation simultaneous system. Please visit:

  • Hussein Elasrag added an answer:
    Does anybody have up to date data on capital flows and balance payments info for within the US?

    If so, please let me know.

    Hussein Elasrag

    Let me also suggest you:

  • Soumitra K Mallick added an answer:
    What are the best indicators of greed, hope and fear in financial markets?

    Animal spirits drive financial markets according to Keynes. But how do we measure this spiritedness?

    Soumitra K Mallick

    I do not know about greed, hope and fear but if you have the general question of bounded rationality in mind you can take a look at my monograph on bounded rationality and incomplete financial markets and papers on testing the observational implications in the papers on Generic NonExistence of equilibrium and the paper on Mathematical Statistical Stock Pricing and Simple Model of Non Performing Assets for  Banks on my RG webpage. I hope that is of help to you.

  • Reda Bouchikhi added an answer:
    Are there variables to measure information asymmetry in the banking system?

    This is for measuring the impact of asymmetric information in bank decision.

    Reda Bouchikhi

    thanks  Mohd Yaziz Mohd Isa ·

  • John Ryding added an answer:
    Could so called "bitcoins" or digital currency reduce payment costs of companies based on transaction cost theory?
    In consideration of uncertainty with foreign exchange rate change
    John Ryding

    I believe in what monetary theorists have argued for decades in terms of the functions of money.  A medium of exchange is not sufficient.  A store of value is necessary.  As a technology for secretly transferring money, there may be something.  But Bitcoin is an asset class and it has to be collectively held by someone (even as it gets transferred).  As far as Weimar Germany was concerned, the mark lost its moneyness and ended circulating with such tremendous velocity.  The same was true of the Zimbabwe dollar a few years ago.  Given the high profile thefts of BTC from MtGox and elsewhere, I am not convinced by the digital security either.

  • Abdul HAFEEZ Siddiqui added an answer:
    Electronic money and economic growth?
    Is there anyone specialized in this field? I'd like to read something more about the relation between electronic money and economic growth.

    All the contributions are welcome.
    Abdul HAFEEZ Siddiqui

    Electronic Money & Economic Growth relate each other as the world economy is in a Technological Transitional state and number of electronic transactions are increasing every year with fastest pace which may resultantly impact on enhancement &  efficiencies of Global Economy.   

  • Godwill George Wanga added an answer:
    Does the Federal Reserve System have more influence on inflation and unemployment now than it did before the crisis?

    The Federal Reserve System balance has grown 4x since the economic crisis on QE programs.

    In this situation, it is very hard to be more influential on economics. What are the main features for good economic policy?

    Godwill George Wanga


    The near zero interest rate indicates the low value of money because of too much money supply in relation to demand. For instance, most of the US importers from China demand renimbi than US dollar. The US dollar is still very strong due to its status of global reserve currency. Thus, the US dollar enjoys such prestigious position because no any other currency has acquired such a position.  

  • Felim Opurum added an answer:
    How do we model both a neo-classical Keynesian system and behavioural finance as a paradigm in our present modern economy?

    The Reviews plummeting monetarism, Keynesian and cognition finance has lead to uncertainty beleaguering the global world economy. Is there any model to clearly invigorate these theories and posit?

    Felim Opurum

    Prof. Lall

    Thanks for your contribution. However, i would like to see more scholary articles on this debate.

  • Matteo Fragetta added an answer:
    Error message "Log of non positive number" in EViews?
    Using VAR lag order selection criteria, if I put this in cointegration I receive the above error. Why?
    Matteo Fragetta

    I am not sure i understand correctly. However,  see if you have tried to do the log of negative numbers which is not possible. What do you mean for I put the lag selected in the cointegration? Cointegration are static long run relationships.

  • Sheriffdeen A. Tella added an answer:
    Are there any reliable sources of information for the composition of foreign reserves held on a country by country basis?

    I am writing a paper on the potential for the shift away from the USD as the world reserve currency and thus far I can only find general data on global reserves via the IMF COFER reports. I am hoping to be able to establish historical shifts, but then to continue to report on the topic.

    Sheriffdeen A. Tella

    The best source for your data is World Bank or IMF data base. Between them they have reserves figures for every member country. Also, they have write-up from their staff and consultants. The papers can assist you in literature review and appropriate methodology for your study.

  • Amit Mittal added an answer:
    How to determine the impact of a negative shock to lending rates via the impulse response function?

    VAR models have become increasingly popular in recent decades. VAR provides empirical evidence on the response of macroeconomic variables to various exogenous shocks or impulses. Within the framework of a Vector Auto-regressive model (VAR), I want to conduct a robustness test. Specifically, I want to study the impact of policy rate on lending rates and examine the impact of a positive and negative shock on lending rates.

    A positive shock (e.g. increase in policy rate) can only allow me to see the impact of a contractionary monetary policy on lending rates. But, I am more interested to look at the impact of a negative shock (e.g. decrease in policy rate or expansionary monetary policy) on lending rates.

    So, how to determine the impact of a negative shock via the ‘Impulse Response Function’ using Eviews or other statistical packages?

    Amit Mittal

    Isolating impact would be especially complicated by the delay in transmission of any change in lending rates and a prelim study to select the period of delay that has significance could probably be a first milestone? Also study only negative impact may thus make any data trend invisible as the inelastic market means the change in lending rates is probably much smaller..

  • Dominique Torre added an answer:
    What was the major economic event in 1950s which caused Europe to switch to a monetary collaboration?

    Was it the second world war, disagreement with Bretton woods with US Dollar dominance or the aftermath of 1929 great depression? 

    Dominique Torre

    During the 1950s, the objective was initially to collaorate econonomically (there was also the objective from Federalists firm Benelux, Germany or Italy to collaborate politically), but not so much the objective to have a common curency. This objective cam later, afetr Bretton Woods collapse, during the early 1970s, when European currencies distributed between strong currencies (DM and Florin) with low inflation rates and weak ones (roughlky speaking the other ones including FF and £) with hight and variable inflation rates. Next steps (including the intermeduate regimes tested during the 1970s, 1980s, and early 1990s) where unsuccesfull attemp to stabilize the internal fluctuations of European currencies, considered at this time as an obstable to  development and exchange synergies. Adoption of Euro has been successfull: from a monetary point of view: Europe has now a striong currency... and no growth :-(

  • Parineeta Pandoo added an answer:
    What is the best method to compare the Nelson-Siegel model and the Svensson model (an extension of the Nelson-Siegel model)?
    I have seen many authors making use of the Root Mean Squared Error. Are there any other reliable and efficient methods that can be used to make comparisons?
    Parineeta Pandoo
    Thanks James I used the individual coefficient test which is simply the t-test and the overall significance test,the F-test to test both models.
  • Per L. Bylund added an answer:
    Boehm-Bawerk suggested that rounding about can enhance productivity. Does this make sense?
    Roundaboutness produces capital goods, and hence productivity.
    Per L. Bylund
    Sure, B-B's roundaboutness in production is perhaps a "banal," "misleading" observation and "impoverished metaphor" if from a production point of view. Man has used tools and machinery for ages. But that's an unfair assessment (partly, I admit, caused by the original question in this thread); B-B's object was to develop a theory of interest (after first critiquing then-existing theories), not a theory of production.

    In fact, his interest theory (see his 3-volume work in the 1880s) was intended to explain how interest determines production structure choices (and therefore the roundaboutness of an economy's overall production and, therefore, the development of capital) rather than, as was then commonly asserted, interest being a phenomenon of (as in "caused by") productivity. He was highly successful in his critique (vol 1), but unfortunately included some productivity aspects when developing his own theory. The latter error was not corrected until well into the 20th century in what has become known as the "pure time preference theory" of interest ("pure" of course referring to the correction of B-B).
  • Usama Al-qalawi added an answer:
    Is there any relation between internal public debt and money supply?
    I wonder if there is a theory that supports a relationship between internal public debt and money supply?
    Usama Al-qalawi
    Thank u all for your contribution.
  • Kedar Vijay Marulkar added an answer:
    Will the bitcoin be the largest currency of doing the world trade transactions in the near future?
    I don't think so
    Kedar Vijay Marulkar
    Bitcoin may get momentum for now. But talking about long term sustainability, Bitcions may not be promising. It doesn't have the characteristics of being used as money. Further, the regulations in respective countries may not allow the applicability. Hence, it may lead to be used as parallel currency. But, it may not last long.
  • Liviu Catalin Andrei added an answer:
    What is the specificity of the EU’s monetary approach ?
    The EU’s monetary approach is specific and complex equally in the historical sense of including the previous ‘monetary snake’ (1971-1979) and (especially) ‘European Monetary System’ (EMS 1979-1999) phases. In such an order, the common currency wouldn’t be able to arrive without such precedents. And since admitting this, other aspects come up to change a bit old judgments about the European integration: (1) the (economic and) monetary union phase rejects the old Balassa’s model view through finding a longer time strategy approaching (1971-2002); (2) the common-unique market also stops being an ‘intermediary’ phase, by becoming a real ‘trunk’ of a larger second phase, that is the ‘advanced integration’; (3) the last, as distinct from the earlier or ‘incipient’ integration phase and both ‘incipient’ and ‘advanced’ integration phases in junction make the real difference between the European (EU) and all the other integration States formations there currently are and were so far existing world-wide.
    Liviu Catalin Andrei
    Hi, John, welcome back and I very appreciate your current contribution after a while. When reading your last text I just remember I was once appointed by the so-called European Institute of Romania, that is something doing diverse works especially for a country that was working hard to join the EU at that time, in 2001-2002. When my relationships with the managing director were becoming not so pleasant on both sides, the man (i.e. I can’t call him a gentleman) asked me to write a study about the Euro currency. Then I’ve got to work because, despite his appreciation, this always was what I liked to. So, I’ve got it in a number of weeks. Nevertheless, my time wasn’t his time, because he called me once (I remember it was just a Monday morning) and told me that we had to ‘stop our working together’, so I don’t have to translate any of that into any language. Then I just asked nothing, but: ‘…ánd the paper I’m working on and will be finished in a few days ?’ He promised me that it would be published in a “honorable way”. Of course, he then didn’t cooperate with me on that, except for that he let me take the paper with me when leaving the institute.
    What I mean is that it was in early 2002. My study was turning into a book that I could find a publisher for that summer, but then this one hardly did publish it the next Summer, after about one year, in mid 2003. The publisher isn’t likely to provide electronic forms, plus it is in Romanian (I mean I can’t put it on RG). It is entitled just ‘Ëuro’ and there currently are two editions of it already(2003 and 2007). But, what is the real meaning of that episode ? I mean the text is just what I had written on at that time, in January-February 2002 and even earlier, in late 2001, for being published nearly one and a half years later. It was nothing more than that for 2003, plus the issue of 2007 had not too much to be added to.
    Do you understand, John ? If not, let me explain. First, that man of the Institute have done to me much better than he could ever have thought – who could prefer to have a poor study under the cover of an Institute, as just a paper required by the boss some ten or eleven years ago, instead of having his/her own book published ? So, forget about this even vulgar aspect for getting to the real history of Europe. Think about that when I have started working and having the first notes about this subject Euro wasn’t even effective money. Then, a real schedule was in place with its paces and phases. That complex undertaking could have met dysfunctions all time and even could fail. So I was writing what was just scheduled and then, after one and a half years the same text was published, as already done. Events could have changed and my book published could encounter a much different reality than what had been scheduled some years ago. Could that be a drama ? Of course, but could it be a drama for me – for having lost a book published on my name – or, as compared to such an eventuality, could that be really catastrophic for a whole Europe that would fail its project for some hundreds of millions of its inhabitants ?!
    Then, it wasn’t any catastrophe, but on the contrary, the Union did make it. It was a performance that the same countries have really demonstrated to the whole world. There was no scheduled point missed, facts were exactly alike, plus my little book was well reflecting the one year after reality, and of course not for any merit of mine – I am far from any prophetic capacity.
    But, once more, what is the real meaning of all these ? The meaning was that I could have two editions of my same book at the four years interval due to that not too much has changed during the first decade of the common currency’s lifetime. Euro was strong, so was the EU’s economy, even when dynamics were here a little lower than worl-wide.
    I recently thought about trying a “Éuro II” volume. It was just an idea, but this time the publisher refused to talk about it with me. It would be much different this time and a real challenge. Don’t you think…?!
  • Hak Choi added an answer:
    Is Mundell's optimal currency area malfunctioning in Europe?
    The Euro was created based on Mundell's model, but smaller countries experienced solvency crises after they had joint the zone. Had Mundell forgot something when he contemplated his theory?
    Hak Choi
    @John. Bankruptcy is default, declining responsibility or liability!

About Monetary Economics

Monetary economics provides a framework for analyzing money in its functions as a medium of exchange, store of value, and unit of account. It considers how money, for example fiat currency, can gain acceptance purely because of its convenience as a public good.

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