Joseph Aschheim

Doctrinal foundations of monetary economics: A review essay

Abstract In the realm of monetary economics, both national and international, expositions of doctrinal history have been hard to come by. As Laidler (1982, p. 326) has observed, ‘historians of economic thought habitually neglect monetary economics when they write their textbooks.’ Recently, however, three publications have appeared that cast a historical perspective on the development of monetary thought: Jurg Niehanss A History of Economic Theory: Classic Contributions, 1720–1980 (Johns Hopkins University Press, Baltimore, MD, 1990); Don Patinkins Money, Interest, and Prices , Second Edition Abridged (MIT Press, Cambridge, MA, 1989); and M. June Flanderss International Monetary Economics, 1870–1960: Between the Classical and the New Classical (Cambridge University Press, Cambridge, U.K., 1989).

Econometric modelling of partial adjustment : The Cochrane-Orcutt procedure, flaws and remedies

Abstract Recent econometric work has shown that, in the presence of lagged dependent variables, the Cochrane-Orcutt technique can result in a local minimum value of rho. So far, however, this finding has largely been overlooked in empirical studies of partial adjustment. This paper demonstrates that in partial adjustment models the Cochrane—Orcutt technique gives inconsistent estimators. In contrast to previous findings, our results prove that none of the coefficients in such models is therefore to be trusted: each of the parameter estimates (including rho) is inconsistent. Thus, even if rho converges to a global minimum value, the estimated coefficients of the explanatory variables will continue to be biased in large samples.

A random coefficient model of speculative attacks: The case of the Mexican peso

A considerable body of theoretical and empirical literature has developed seeking to explain the timing, magnitude, and mechanics of speculative attacks against currencies. This paper extends the empirical specification of the traditional speculative attack model by developing a random coefficient (RC) model which, as we show, encompasses a variety of fixed-coefficient models as special cases. Two classes of models (fixed- and random-coefficient models) are estimated for the case of Mexican peso over the period January 1988 to Novemeber 1994, while forecasts of the peso/U.S. dollar exchange rate are generated for the period December 1994 through December 1995. The comparison of forecast errors generated by five model specifications indicates that forecasts based on the RC procedures are superior to those based on the fixed-coefficient estimation. It is also shown that there are good theoretical reasons why the RC procedure performs better in prediction than the fixed-coefficient procedure.

Dollar appreciation, deficit stimulation, and the new protectionism

Abstract This article probes whether contemporary U.S. protectionism arises from an appreciating dollar. It concludes that (a) an enrich-thy-neighbor policy of upvaluation has transformed the current U.S. economic recovery into an engine of global recovery; (b) flexible exchange rates continually equilibrate the balance of payments as evidenced in changed domestic—relative to foreign—prices, as well as in capital movements induced by interest-rate differentials resulting from exchange-rate shifts; and (c) flexible exchange rates automatically alter so as to maintain a countrys competitive position in the world economy even when facing deficits at home and abroad.

On the liquidity effect of increasing reserve requirements

Controversy persists over the relative merits of restrictive open-market operations versus reserve-requirement increases as alternative techniques of monetary control. From a comparison of the two techniques presented in an article in the Economic Journal of December 1959 [1], the present writer has inferred the general superiority of open-market operations to reserve-requirement variation. This inference was elaborated in the present writers reformulation [3] of the comparison in the Economic Journal of June 1963. A lengthy series of challenges to this inference has appeared in the literature [10, 12, 14, 13, 9, 8, 6, 11]. An outstanding and trenchant challenge is put forward by Professor A. D. Bain [7, pp. 131-36] in his 1970 volume, The Control of the Money Supply, as a sequel to Bains article [6] in the Economic Journal of March 1964. Bain focuses on the most persistently controverted issue in the comparison of the two techniques of monetary control. This paper is principally addressed to the challenge posed by Bains analysis. Additionally, the paper considers an unpublished recent contribution to the discussion by Professor W. B. Reddaway. The results of what follows are: (a) that Bains challenge proves entirely surmountable, and (b) that Reddaways contribution reinforces the superiority finding for openmarket operations.

Inconsistency in correcting for serial correlation in money-demand models

ConclusionOur results demonstrate that none of the estimated coefficients obtained by applying the Cochrane-Orcutt technique to partial-adjustment money-demand models is dependable: each of the parameter estimates is inconsistent. The estimated coefficients of the explanatory variables will be biased even in large samples and can thus lead to misleading inferences about the income and interest-rate elasticities of the demand for money.