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The econometric consequences of nonstationary data have wide
ranging im plications for empirical research in economics.
Specifically, these issues have implications for the study of
empirical relations such as a money demand func tion that links
macroeconomic aggregates: real money balances, real income and a
nominal interest rate. Traditional monetary theory predicts that
these nonsta tionary series form a cointegrating relation and
accordingly, that the dynamics of a vector process comprised of
these variables generates distinct patterns. Re cent econometric
developments designed to cope with nonstationarities have changed
the course of empirical research in the area, but many fundamental
challenges, for example the issue of identification, remain. This
book represents the efforts undertaken by the authors in recent
years in an effort to determine the consequences that
nonstationarity has for the study of aggregate money demand
relations. We have brought together an empirical methodology that
we find useful in conducting empirical research. Some of the work
was undertaken during the authors' sabbatical periods and we wish
to acknowledge the generous support of Arizona State University and
Michigan State University respectively. Professor Hoffman wishes to
acknowledge the support of the Fulbright-Hays Foundation that
supported sabbattical research in Europe and separate support of
the Council of 100 Summer Research Program at Arizona State
University."
Karl Brunner Monetary affairs have preoccupied observers over the
ages. In the middle of the 14th century, the chaos in the French
currency system after many rounds of currency debasement attracted
comments expressing helpless confusion. Goethe's Mephistopheles
convinced the imperial court to inflate with paper money "for the
benefit of the public" and to satisfy all the demands on the
government's largesse. Our century is no exception. The massive
technological improvement in creating money has contributed to
hyperinflationary experiences never before recorded in history.
These events occurred, however, in the political disarray following
major wars. More important are the persistent pe ace time failures
of our monetary institutions. A massive worldwide deflation,
centered in the United States and Germany, imposed a tragic social
and political fate on Western societies. Similarly, the sequence of
a worldwide inflation followed by deflation observed over the past
15 years has fostered disruptive economic and political conditions.
The monetary disarray experienced throughout history was crucially
influenced by the prevailing monetary arrangements. These
arrangements determine the level and movement of the nation's money
stock over time. Under the circumstances, the political issue
confronting us bears on the useful choice of monetary arrangements.
This choice should involve institutions that prohibit both massive
deflation and persistent inflation.
The econometric consequences of nonstationary data have wide
ranging im plications for empirical research in economics.
Specifically, these issues have implications for the study of
empirical relations such as a money demand func tion that links
macroeconomic aggregates: real money balances, real income and a
nominal interest rate. Traditional monetary theory predicts that
these nonsta tionary series form a cointegrating relation and
accordingly, that the dynamics of a vector process comprised of
these variables generates distinct patterns. Re cent econometric
developments designed to cope with nonstationarities have changed
the course of empirical research in the area, but many fundamental
challenges, for example the issue of identification, remain. This
book represents the efforts undertaken by the authors in recent
years in an effort to determine the consequences that
nonstationarity has for the study of aggregate money demand
relations. We have brought together an empirical methodology that
we find useful in conducting empirical research. Some of the work
was undertaken during the authors' sabbatical periods and we wish
to acknowledge the generous support of Arizona State University and
Michigan State University respectively. Professor Hoffman wishes to
acknowledge the support of the Fulbright-Hays Foundation that
supported sabbattical research in Europe and separate support of
the Council of 100 Summer Research Program at Arizona State
University."
Karl Brunner Monetary affairs have preoccupied observers over the
ages. In the middle of the 14th century, the chaos in the French
currency system after many rounds of currency debasement attracted
comments expressing helpless confusion. Goethe's Mephistopheles
convinced the imperial court to inflate with paper money "for the
benefit of the public" and to satisfy all the demands on the
government's largesse. Our century is no exception. The massive
technological improvement in creating money has contributed to
hyperinflationary experiences never before recorded in history.
These events occurred, however, in the political disarray following
major wars. More important are the persistent pe ace time failures
of our monetary institutions. A massive worldwide deflation,
centered in the United States and Germany, imposed a tragic social
and political fate on Western societies. Similarly, the sequence of
a worldwide inflation followed by deflation observed over the past
15 years has fostered disruptive economic and political conditions.
The monetary disarray experienced throughout history was crucially
influenced by the prevailing monetary arrangements. These
arrangements determine the level and movement of the nation's money
stock over time. Under the circumstances, the political issue
confronting us bears on the useful choice of monetary arrangements.
This choice should involve institutions that prohibit both massive
deflation and persistent inflation.
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