Francis W. Ahking

The relationship between government deficits, money growthm and inflation

Abstract We model the time-series relationship between Federal government deficits, base-money growth, and inflation as a trivariate autoregressive process. The technique is a generalization of Hsiaos (1979; 1981) bivariate autoregressive modeling method, but also incorporates several recent contributions by Caines, Keng, and Sethi (1981) and Lutkepohl (1982) . The results indicate that for the 1960s, both government deficits and inflation are econometrically exogenous. But, for the 1950s and the 1970s, government deficits, money growth, and inflation are all causally related.

Model mis-specification and Johansen's co-integration analysis: an application to the US money demand

This paper examines the consequences of mis-specifying the deterministic components of a cointegration model estimated with the Johansens multivariate maximum likelihood approach. Using the U.S. long-run money demand model as our example, we show that when a linear deterministic time trend is excluded from the cointegration model, we obtain very robust results suggesting the cointegration of the real M1 and the real M2 with their determinants. When a linear deterministic time trend is included, however, we find generally unfavorable results. Next, using a procedure discussed in Johansen (1992) that jointly determines the cointegration rank and the deterministic components of a model, we find that the preferred models for the real M1 and the real M2 are generally not cointegrated with their determinants. Our study suggests that great care should be exercised in the initial stages of model specification. The inclusion or exclusion of the linear deterministic time trend should be justified formally. Otherwise, the results may be misleading.

Testing long-run purchasing power parity with a Bayesian unit root approach: the experience of Canada in the 1950s

A test is made for long-run purchasing power parity with Canadian monthly and quarterly data from the 1950s using a Bayesian unit-root test discussed by Koop, but first suggested by Zellner and Siow. Results show that the hypothesis that the real exchange rate is a stationary process receives relatively low posterior probability. Put differently, the probability is low that the nominal exchange rate and the national price levels have a stable long-run relationship. Furthermore, it is also found that there are structural differences between the sample period from October 1950 to May 1962 and the sample period from January 1952 to November 1960.

Further results on long-run purchasing power parity in the 1920s

Abstract We reexamine long-run purchasing power parity (PPP) for the Dollar/Sterling exchange rate in the 1920s using a three-variable cointegration regression and the new statistics tabulated by Engle and Yoo (1987). Consistent with Taylor and McMahons (1988) results, we reject cointegration for the Dollar/Sterling exchange rate, the U.K. and the U.S.A. price levels for the sample period February 1921 to May 1925. Contrary to Taylor and McMahon, however, we find only weak evidence of cointegration for the shorter sample period February 1921 to May 1924.

A Comparison of the Stochastic Processes of Structural and

Arnold Zellner and Franz Palm (1974) show that comparing the actual with the implied stochastic process es generating the endogenous variables in a system of dynamic structu ral equations provides important information about the systems corre ct specification. The authors apply their methodology to structural e xchange-rate models. They find that the log of the bilateral exchange rate is generally well approximated by a random-walk model. Thus, th e stochastic processes generating the exogenous variables should also be random-walk models, which in not borne out by our empirical resul ts. They suggest a reconciliation of their results based on a decompo sition technique developed by Stephen Beveridge and Charles R. Nelson (1981). Copyright 1987 by MIT Press.

The Aggregate Demand for Private Health Insurance Coverage in the United States

This article estimates the aggregate demand for private health insurance coverage in the United States using an error correction model for the period 1966–1999. Both short- and long-run price and income elasticities of demand are estimated. The empirical findings indicate that both private insurance enrollment and the completeness of insurance are relatively inelastic with respect to changes in price and income in the short and long run. Moreover, the results suggest that an increase in the number cyclically and frictionally uninsured generates less welfare loss than an increase in the number of structurally uninsured.

The random walk hypothesis of the velocity of money: Some evidence from five EEC countries☆

Abstract This paper investigates the random-walk hypothesis of the velocity of money using quarterly data from five EEC countries. For all five countries, this hypothesis is not rejected by the data.

Government Spending and Consumer Attitudes toward Risk, Time Preference, and Intertemporal Substitution: An Econometric Analysis

We construct a model that considers the direct effects, if any, of government spending on the attitudes of a typical consumer toward risk, time preference, and intertemporal substitution. The null hypothesis is that a growing government sector does not affect the consumers behavior, and the alternative is that it causes him to become less risk averse, more impatient to consume now rather than in the future, and less responsive to changes in real interest rates. If the alternative hypothesis is correct, then government growth may lead to lower economic growth. Using Greek annual aggregate data, 1960-1990, we can reject the null hypothesis.

Measuring U.S. Business Cycles: A Comparison of Two Methods and Two Indicators of Economic Activities

We examine two issues in business cycle research. We first compare the performance of Hamilton’s Markov-Switching (MS) model and the Bry and Boschan algorithm in replicating the US business cycle features. A number of studies, especially Harding and Pagan, have demonstrated that Hamilton’s nonlinear MS model do not replicate business cycle features better than simpler linear models. Second, we compare the ability of the U.S. real GDP and a relatively new coincident index of four economic indicators, published by the Federal Reserve Bank of Philadelphia, in replicating features of the U.S. business cycle. We find that Hamilton’s MS model is not robust when compared to the Bry and Boschan algorithm with respect to different sample periods and to different measures of real income. Second, we also find that a constructed quarterly version of the coincident index is slightly preferred over the real GDP.

A comparison of the stochastic processes of structural and time series exchange rate models

Zellner and Palm (1974) show that comparing the actual with the implied stochastic processes generating the endogenous variables in a system of dynamic structural equations provides important information about the systems correct specification. We apply their methodology to structural exchange-rate models. We find that the log of the bilateral exchange rate is generally well approximated by a random-walk model. This implies that the stochastic processes generating the exogenous variables should also be random-walk models. Our empirical results, however, show that this is not, in general, the case. We conclude by suggesting a reconciliation of our results based on a technique developed by Beveridge and Nelson (1981).