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We investigate the demand for money and the degree of substitutability among monetary assets in the United States using the generalized Leontief and the Minflex Laurent (ML) models as suggested by Serletis and Shahmoradi (2007). In doing so, we merge the demand systems literature with the recent financial econometrics literature, relaxing the homoskedasticity assumption and instead assuming that the covariance matrix of the errors of flexible demand systems is time-varying. We also pay explicit attention to theoretical regularity, treating the curvature property as a maintained hypothesis. Our findings indicate that only the curvature constrained ML model with a Baba, Engle, Kraft, and Kroner (BEKK) specification for the conditional covariance matrix is able to generate inference consistent with theoretical regularity. [ABSTRACT FROM AUTHOR]

We explore bifurcation phenomena in the open-economy New Keynesian model developed by Galí and Monacelli in 2005. We find that the open economy framework brings about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation, without adequate prior econometrics research. [ABSTRACT FROM AUTHOR]

This special issue ofEconometric Reviewshonors William A. Barnett's exceptional contributions in the field of economics. It follows and complements a recentJournal of Econometricsspecial issue also in honor of William A. Barnett, Internally Consistent Modeling, Aggregation, Inference, and Policy, and is devoted to papers with emphasis on research in the time domain both at the individual and aggregate level. [ABSTRACT FROM PUBLISHER]

This paper estimates interfuel substitution elasticities in selected developing and industrialized economies at the sector level. In doing so, it employs state-of-the-art techniques in microeconometrics, particularly the locally flexible normalized quadratic functional form, and provides evidence consistent with neoclassical microeconomic theory. The results indicate that the interfuel substitution elasticities are consistently below unity, revealing the limited ability to substitute between major energy commodities (i.e., coal, oil, gas, and electricity). We find that on average, industrial and residential sectors tend to exhibit higher potential for substitution between energy inputs as compared to the electricity generation and transportation sectors in all countries, with the United States being the only exception. In addition, we find that developed countries demonstrate higher potential for interfuel substitution in their industrial and transportation sectors as compared to the developing economies. The implication is that interfuel substitution depends on the structure of the economy, not the level of economic development. Moreover, higher changes in relative prices are needed than what we have already experienced to induce switching toward a lower carbon economy. [ABSTRACT FROM AUTHOR]

Purpose - The purpose of this paper is to examine the effects of inflation uncertainty on reai economic activity using data from four industrialised countries. Design/methodology/approach - The paper uses the econometric framework developed by Elder in the context of a multivariate framework in which a structural vector autoregression (VAR) is modified to accommodate multivariate GARCH-in-mean (MGARCH-M) errors. It calculates the impulse response functions for the multivariate GARCH(1,1)-in-mean VAR in order to see whether the specification captures the fundamental dynamics. Findings - The results show that inflation uncertainty has differential effects on output growth across these countries. Originality/value - In the context of multivariate GARCH(1,1)-in-mean VAR, this paper uses a non-recursive identification scheme and separate identification for the large and small economies. [ABSTRACT FROM AUTHOR]

In this paper we use autoregressive conditional heteroscedasticity-type models to investigate the determinants of returns and volatility in the New York Mercantile Exchange Henry Hub natural gas futures contract market. Using daily data for the period that natural gas has been traded on the exchange, we find significant evidence of seasonal and open interest effects in both, returns and volatility. [ABSTRACT FROM AUTHOR]

This paper follows Lucas (2000) , and Serletis and Yavari (2004) and estimates the welfare cost of inflation in Italy. It uses recent advances in the field of applied econometrics to estimate the interest elasticity of money demand in Italy and reports welfare cost estimates close to those reported by Serletis and Yavari for Canada and the USA, but an order of magnitude smaller than those reported by Bullard and Russell (2004) for the US economy. [ABSTRACT FROM AUTHOR]

We use long low-frequency data on prices and interest rates for Canada, Italy, Norway, Sweden, the UK and the USA to investigate empirical relationships previously taken to support the Gibson paradox and the Fisher effect. Using recent advances in applied econometrics, we reject the existence of a long-run relationship between the price level and the nominal interest rate and between the inflation rate and the nominal interest rate. [ABSTRACT FROM AUTHOR]

Recent developments in the field of econometrics--in particular, cointegration theory that permits more sophisticated examination of the relationship between nonstationary time-series, are used to analyse the long-run relationship between money and stock prices in the United States. Two recently developed techniques are used to test for cointegration: the Engle and Granger two-step approach as well as Johansen's maximum likelihood approach. It is found that money and stock prices do not cointegrate -- a result consistent with the efficient markets hypothesis. [ABSTRACT FROM AUTHOR]

Recent developments in the theory of cointegration are employed to test the assumption that futures commodity markets are efficient. The results are consistent with such market efficiency. The presence of time-varying risk premia, conditional on the assumption of market efficiency, is also investigated. The evidence suggests that such premia are present in futures commodity markets. [ABSTRACT FROM AUTHOR]

With the development of the 'flexible functional forms', the issue of capital, labour, energy, and materials (KLEM) substitutability/complementarity has attracted a great deal of attention and has been the subject of many econometric studies. (e.g. Berndt and Christensen, 1973a, b, 1974; Berndt and Wood, 1975, 1979; Norsworthy and Malmquist, 1983). However, all of these studies directly apply data to static models implicitly assuming that the pattern of demand adjusts to a change in exogenous variables instantaneously. No attention has been paid to the dynamic structure of the models used, although many studies report results with serially correlated residuals suggesting that the underlying models are dynamically misspecified. This approach to dynamic specification, although standing in contrast to me theoretical approaches that maintain specific theories of dynamic adjustment, is intuitively appealing as it seems that no theoretical approach is likely to deal with the actual dynamics of a demand system, which are likely to be a complicated amalgam of effects, including adjustment costs, the formation of expectations and misinterpretation of real price changes. This paper applies the Anderson and Blundell (1982, 1983) approach to the analysis of the demand for factor inputs and attempts to establish the nature of the relationship between KLEM using annual US manufacturing data. This is achieved by estimating a sequence of nested dynamic specifications and by performing tests of the nested structures as well as an economic theory to establish the most restrictive specification acceptable to the data. [ABSTRACT FROM AUTHOR]

This article follows Lucas (2000) and Serletis and Yavari (2005) and estimates the welfare cost of inflation in the Euro zone. It uses recent advances in the field of applied econometrics to estimate the interest elasticity of money demand and reports that the welfare cost of inflation is lower in big countries than it is in small countries. [ABSTRACT FROM AUTHOR]