Nigel W. Duck

Some International Evidence on the Quantity Theory of Money

This paper develops a two-equation model of money, interest rates, and inflation based on the simple quantity theory an d Fishers hypothesis about nominal interest rates. The model has both within-equation and cross-equation restrictions that are tested on long-run average cross-country data covering the period 1962-88. The major finding is that the restrictions cannot be easily rejected and this suggests that the behavior of interest rates and inflation in a major part of the postwar period can be understood in terms of classical, monetary forces. Copyright 1993 by Ohio State University Press.

Unanticipated monetary growth, output and the price level: U.K. 1946–1977☆

Abstract This paper develops and estimates using annual data from 1946–1977 a three-equation model of the U.K. economy, in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in money supply. Expectations of monetary growth are assumed to be Muth-rational. The model was estimated using efficient procedures, and tests of the over-identifying restrictions were generally favourable to model specification. Some features of the price equation are unsatisfactory and the results in this section must be considered tentative.

A quarterly model of unanticipated monetary growth, output and the price level in the U.K. 1963–1978

Abstract This paper develops and estimates using quarterly data from 1963 to 1978 a three-equation model of the U.K. economy, in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in the money supply. Expectations of monetary growth are assumed to be Muth-rational. The model was estimated using efficient procedures and tests of the over-identifying restrictions were favourable to the model specification. In particular, anticipated monetary growth was found to have no significant effect on output.

The Influence of Unanticipated Money Growth on Real Output: Some Cross-Country Estimates

Two MAJOR PROPOSITIONS can be deduced from the theories of the business cycle developed in [4, 14, 15, 161: (1) monetary growth affects real output only if it is unanticipated; (2) the impact on output of unanticipated monetary growth declines the more unpredictable monetary growth becomes. Proposition 1 has been tested on U.K. data in [2, 3S, on U.S. data in [5, 6, 7], and on Canadian data in [ 19] . The best-known but somewhat informal test of proposition 2 is contained in [15] on data from a cross section of eighteen countries.l In this paper we apply the method described in [3] to test proposition 1 using data from a range of countries. Furthermore we develop and discuss a formal method of testing proposition 2 and apply that method to the same data. Our main conclusion is that neither proposition can be decisively rejected.

Rational expectations in macroeconomics : an introduction to theory and evidence

Preface. 1. Expectations in Macroeconomics. 2. The Theory of Rational Expectations. 3. Testing the Rational Expectations Hypothesis. 4. Rational Expectations and a Flexible Price Macroeconomic Model. 5. Criticisms of the Flexible Price Rational Expectations Model. 6. Rational Expectations and Macroeconomics: Two Influential Empirical Studies. 7. Criticism and Reappraisal of the Lucas and Barro Models. 8. Real Business Cycle Theory. 9. Rational Expectations and the Real Income Hypothesis. 10. Summary and Conclusions.

Economic Growth and Geographic Proximity

Abstract Using data on 92 countries, 90 European regions, and 48 US states we present results suggesting that physical distance between economies has little role to play in explaining the spatial correlation of growth rates.

Money, output and prices: : An empirical study using long-term cross country data

Abstract This paper uses 20-year average data on money, output, prices and certain other variables from 33 countries to examine the relationships between those variables. It finds evidence for a common demand for money function in which the demand for nominal money has a real income and price elasticity of one, and a negative but small interest elasticity. It also suggests that long-term monetary expansion is primarily though not wholly reflected in inflation. Tests of the rational expectations hypothesis provide at best only weak support for the hypothesis.

Reference-Day Risk and the Use of Monthly Returns Data

Investment practitioners and the empirical finance literature make extensive use of monthly stock returns, where a monthly return is based on the change in stock price between one particular day of the calendar month—the reference day—and the corresponding day of the following month. We show that the choice of reference day seriously affects estimates of the properties of monthly returns, including their means, medians, variances, correlations, and betas. We find these effects both in individual stocks and in market indexes. Our evidence indicates the effects are generally unsystematic and are caused by sampling variation but are sufficiently pervasive and serious to suggest that studies that use estimates of the properties of monthly returns as inputs, and portfolio decisions based on such estimates, should be tested for robustness against different reference days.

Incomplete information and the time series behaviour of consumption

Pischke (1995) uses both microeconomic and macroeconomic US data to test the idea that, within an otherwise standard PIH framework, ignorance by agents of aggregate labour income can account for the observed degree of excess smoothness and sensitivity in consumption. His tests involve only the second moments of aggregate consumption and labour income. In this paper our main aim is to identify and test the restrictions his model implies for aggregate consumption dynamics, using US quarterly data over the period 1959-1996, but our framework allows us also to test an earlier, related model of Goodfriend (1992). We find that both models can be formally rejected: ignorance of aggregate labour income cannot by itself account for aggregate consumption dynamics; some other relaxation of the assumptions of the standard PIH is required. We give an example of one possible such relaxation and present evidence indicating that Pischkes version of imperfect information may, within that framework, have a significant role to play. Copyright

Partial adjustment and the permanent income hypothesis

Abstract The paper extends the permanent income hypothesis to incorporate two alternative theories of partial adjustment. The first is the conventional forward-looking quadratic costs of adjustment model; the second develops the idea that adjustment of consumption to changes in permanent income are faster the more advanced is the notice of such changes. Both theories can in principle account for the ‘excess smoothness’ and ‘excess sensitivity’ phenomena highlighted in recent research. Both models are applied to U.S. and U.K. quarterly data. The second model appears to provide a more satisfactory explanation of consumption in the two countries.