Peer-Reviewed Publications.

Our economists have authored peer-reviewed research in monetary economics, applied econometrics, demand systems, and forecasting since 1994. These fields' statistical and econometric methods inform contemporary forensic-economics practice.

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Binner, J.M., Kelly, L.J., Tepper, J.A.. Professional Forecasters vs. Shallow Neural Network Ensembles: Assessing Inflation Prediction Accuracy. Journal of Risk and Financial Management, 18(4), 173.

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Accurate inflation forecasting is crucial for effective monetary policy, particularly during turning points that demand policy realignment. This study examines the efficacy of dedicating ensembles of shallow recurrent neural network models to different forecasting horizons for predicting U.S. inflation turning points more precisely than traditional methods, including the Survey of Professional Forecasters (SPF). We employ monthly data from January 1970 to May 2024, training these ensemble models on information through December 2022 and testing on out-of-sample observations from January 2023 to May 2024. The models generate forecasts at horizons of up to 16 months (one ensemble per horizon), accounting for both short- and medium-term dynamics. The results indicate that such ensembles of recurrent neural networks consistently outperform conventional approaches using key performance metrics, notably detecting inflation turning points earlier and projecting a return to target levels by May 2024—several months ahead of the Survey of Professional Forecasters' average forecast. These findings underscore the value of such ensembles in capturing complex nonlinear relationships within macroeconomic data, offering a more robust alternative to standard econometric methods. By delivering timely and accurate forecasts, dedicated ensembles of shallow recurrent neural networks hold great promise for informing proactive policy measures and guiding decisions under uncertain economic conditions.

Binner, J.M., Fleissig, A.R., Swofford, J.L.. Are green, climate-change and corporate bonds substitutes or complements? Evidence from a Fourier specification. Economics Letters, 251, 112316.

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We estimated elasticities for climate-change, green and corporate bonds. Consistent with demand theory, own-price elasticities are negative. These assets are generally substitutes, but exhibit some complementarity between climate-change and green bonds early in the sample. Thus, companies issuing bonds may want to issue both types of bonds allowing potential bond holders to diversify their portfolios. Climate-change and corporate bond budget elasticities generally exceed unity, while green bond budget elasticities are generally inelastic. These budget elasticities indicate that corporations should expect these markets to grow with economy.

Fleissig, A.R., Swofford, J.L.. The impact for UK real sector policy of imposing curvature restrictions on a normalized quadratic specification. Applied Economics, 1-18.

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We estimate elasticities over time from UK services, non-durables, semi-durables and durables data that satisfy revealed preference conditions for consistency with a well-behaved utility function. When estimating a normalized quadratic reciprocal indirect utility specification, there were violations of curvature, so we also estimated a locally curvature restricted specification. Imposing curvature restrictions reduces but does not eliminate curvature violations. Both specifications produce negative own-price elasticities consistent with the theory of demand. Estimates find services and non-durables were inelastic while semi-durables and durables elastic in demand over the sample. There is relatively little substitution involving services and non-durables but typically elastic substitution between semi-durables and durables. Estimated expenditure elasticities from both specifications find services and non-durables inelastic necessities but elastic demands for semi-durables and durables. The estimates suggest fiscal policy will have a larger impact on expenditure elastic semi-durables and durables compared to inelastic services and nondurables. Monetary policy will have a bigger impact on interest-sensitive semi-durables and durable goods. The major difference is that the curvature restricted model typically significantly reduces variation in elasticity estimates over time. Our data included the Brexit and COVID-19 shocks and the imposition of curvature restrictions appear to smooth away important information from those shocks.

Fleissig, A.R., Jones, B.E.. UK household-sector money demand and Divisia monetary aggregates in the new millennium. Macroeconomic Dynamics, 28(1), 51-73.

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We estimate elasticities of substitution between components of the Bank of England's household-sector UK Divisia monetary aggregate using quarterly data from 1999 to 2019, encompassing the period surrounding the global financial crisis. The demand system includes interest-bearing sight and time deposits at monetary financial institutions as components, since deposit data for banks (excluding mutuals) and for mutuals are no longer published separately. We find that the elasticities of substitution that relate to changes in the user cost of noninterest-bearing monetary assets imply inelastic substitution over all or almost all of the sample and, consequently, a conventional monetary aggregate would be a highly misleading economic indicator relative to a Divisia monetary aggregate.

Ailts Campeau, D., Kelly, L.. Analysis of a Small Business Development Center's Entrepreneurial Training Program and Counseling Services for Rural and Urban Entrepreneurs in Wisconsin. Entrepreneurship Education and Pedagogy.

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Fleissig, A.R., Swofford, J.L.. The Impact of Brexit on UK Habits for Expenditure on Imports and Consumption. International Review of Economics and Finance, 88, 196-203.

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Habit persistence for imported goods and imported services has important policy implications for economic shocks like Brexit. We find a moderate amount of habit persistence in U.K. imports. Habits for imported goods declines in the post-Brexit vote sample, suggesting that habits are already changing lowering Brexit transition costs for UK consumers. Habits for imported services change little. We find imported services are generally complementary, while imported goods tend to be substitutes, for most of the other types of expenditure. Long-run budget elasticities indicate despite Brexit the U.K. economy will become more outward looking over time.

Fleissig, A.R., Jones, B.E.. U.K. Household-Sector Money Demand during Brexit and the Pandemic. Economic Modelling, 123, 106234.

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Conventional monetary aggregates assume perfect substitutability between monetary assets. We use monthly household-sector data to estimate two versions of the dynamic Fourier demand model to determine the degree of substitutability between U.K. monetary assets and find strong evidence against perfect substitution throughout our sample. Evidence of inelastic substitution is stronger after the 2008–09 recession and some elasticities of substitution are relatively low either following the Brexit vote or during the onset of the pandemic. Our results strongly support using Divisia monetary aggregates to gauge the effects of monetary policy in the U.K., since they do not impose any assumptions about substitutability. Annual growth rates of comparable household-sector Divisia and simple sum monetary aggregates had converged just before the start of the pandemic. Subsequently, money growth increased sharply and the simple sum increasingly understated the annual money growth rate compared to Divisia with the difference exceeding two percent by early 2021.

Fleissig, A.R., Jones, B.E., Darvas, Z.. Euro area monetary asset demand and Divisia aggregates. The European Journal of Finance, 29(16), 1885-1912.

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Monetary asset user costs are functions of spreads between a benchmark rate of return and the own rates of return on the monetary assets. We analyze the impact of the benchmark rate on a Euro area Divisia M2 aggregate, on estimated elasticities of substitution, and on estimated impulse response functions. Substitution in response to changes in the user cost of M1 is generally elastic, but we find evidence of inelastic substitution along other dimensions. When a loan rate is used as the benchmark, substitution in response to changes in the user costs of the two components of M2-M1 is inelastic throughout the sample and the corresponding elasticity estimates are near their lowest levels during the pandemic. This is strong evidence that Divisia monetary aggregates are preferable to conventional monetary aggregates. Annual growth rates of simple sum and Divisia M2 monetary aggregates differ significantly in some periods, but not during the pandemic. Estimated impulse response functions using both Divisia and simple sum money measures indicate that money shocks have positive and statistically significant effects on real output. The response of the price level to a money shock tends to be more persistent when the models are estimated using Divisia aggregates.

Fleissig, A.R., Swofford, J.L.. Habit persistence in assets demand. Southern Economic Journal, 89(3), 975-985.

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Habit persistence is examined for six asset demand categories using U.S. data and a dynamic forward-looking model. We find habit persistence is greater for more liquid assets compared to riskier assets and may in part explain low holdings of riskier assets. Cash assets are found to be substitutes with other liquid assets under habit formation. Consistent with portfolio analysis, the riskier asset categories of money market mutual funds and bonds are found to be complements in use. The three more risky asset categories have budget elasticities greater than unity indicating that in the long run consumers are more likely to turn to these assets as their wealth increases.

Fleissig, A.R.. Habit Persistence in Food Purchases. Applied Economics Letters, 29(11), 1033-1036.

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Taxes are often imposed on sugary products to decrease consumption and thus lower obesity. Reducing purchases of food products may be difficult if they are habit forming and thus addictive. Food products may also be durable and provide service flows if individuals become satiated or stockpile goods. Estimates find sugar, sweets, cereals, and bakery products to be net habit forming and highly addictive. Meat and poultry are also highly habit-forming goods. Healthier substitutes like fresh fruits, vegetables, fish, and seafood have the lowest estimates of net habit formation and further highlight the difficulty of reducing obesity through encouraging a healthier diet.

de Oliveira, A., Binner, J.M., Mandal, A., Kelly, L., Power, G.J.. Using GAM functions and Markov-Switching models in an evaluation framework to assess countries' performance in controlling the COVID-19 pandemic. BMC Public Health, 21(1), 2173.

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Background: The COVID-19 pandemic has initiated several initiatives to better understand its behavior, and some projects are monitoring its evolution across countries, which naturally leads to comparisons made by those using the data. However, most "at a glance" comparisons may be misleading because the curve that should explain the evolution of COVID-19 is different across countries, as a result of the underlying geopolitical or socio-economic characteristics. Therefore, this paper contributes to the scientific endeavour by creating a new evaluation framework to help stakeholders adequately monitor and assess the evolution of COVID-19 in countries, considering the occurrence of spikes, "secondary waves" and structural breaks in the time series. Methods: Generalized Additive Models were used to model cumulative and daily curves for confirmed cases and deaths. The Root Relative Squared Error and the Percentage Deviance Explained measured how well the models fit the data. A local min-max function was used to identify all local maxima in the fitted values. The pure Markov-Switching and the family of Markov-Switching GARCH models were used to identify structural breaks in the COVID-19 time series. Finally, a quadrants system to identify countries that are more/less efficient in the short/long term in controlling the spread of the virus and the number of deaths was developed. Such methods were applied in the time series of 189 countries, collected from the Centre for Systems Science and Engineering at Johns Hopkins University. Results: Our methodology proves more effective in explaining the evolution of COVID-19 than growth functions worldwide, in addition to standardizing the entire estimation process in a single type of function. Besides, it highlights several inflection points and regime-switching moments, as a consequence of people's diminished commitment to fighting the pandemic. Although Europe is the most developed continent in the world, it is home to most countries with an upward trend and considered inefficient, for confirmed cases and deaths. Conclusions: The new outcomes presented in this research will allow key stakeholders to check whether or not public policies and interventions in the fight against COVID-19 are having an effect, easily identifying examples of best practices and promote such policies more widely around the world.

Fleissig, A.R.. Habit Persistence in Tourist Sub-Industries. Journal of Applied Economics, 24(1), 103-113.

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Habit persistence across six U.S. tourism sub-industries is estimated using a dynamic forward looking model. Estimates show that habits largely determine current expenditure for air transportation, shopping, accommodation, and other transportation. Estimated uncompensated price elasticities find that air transport and accommodation are price elastic in the short-run and long-run. Shopping is price inelastic in the short-run but price elastic in the long-run. An important result is that air transportation and other transportation are elastic substitutes for price changes in air transportation but inelastic substitutes for price changes in other related transportation. Estimates show that expenditure across most of the tourist sub-industries is closely related because they are gross complements. Food and beverages are necessities, price inelastic, and relatively unresponsive to changes in expenditure across the sub-industries. The estimates show that policy makers and tourist marketing should account for habit persistence and differences between the short-run and long-run.

Fleissig, A.R.. Estimating Elasticities of Substitution for Sin Goods. Applied Economics, 53(30), 3549-3561.

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Own-price and cross-price elasticities of substitution are estimated for the six 'sin' goods of spirits, beer, wine, casino gambling and lotteries using aggregate U.S. quarterly national data. The own-price and cross-price elasticities of substitution are not constrained to be constant over the sample and are estimated using the Fourier flexible form. There is evidence of much variation in substitution over the sample, including during the recessions. All 'sin' goods, except lotteries, have inelastic demands. Beer and tobacco have the most inelastic demands which are consistent with the evidence that beer is the most popular type of spirit while tobacco products are often considered addictive commodities. The three types of alcohol of spirits, beer, and wine are Morishima cross-price substitutes. Casino gambling and lotteries are Morishima cross-price substitutes having an elastic response to price changes in casino gambling but have and inelastic response for price changes of lotteries. Estimates show that the remaining 'sin' goods are complements in use. Policy makers must consider how a tax on a 'sin' good will impact demand for the good partially based on its own-price elasticity of demand as well as the cross-price elasticity of substitution or complementarity relationships with other 'sin' goods.

Fleissig, A.R.. Expenditure and price elasticities for tourism sub-industries from the Fourier flexible form. Tourism Economics, 27(8), 1692-1706.

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Tourism studies holding expenditure and price elasticities constant can produce misleading results. The Fourier flexible form provides estimates of expenditure and price elasticities over the business cycle. Results typically show considerable evidence of increased variation in expenditure and price elasticities over the business cycle and during the decline in overall tourism expenditure from 2001 to 2003 and from 2009 to 2011. Estimated own-price elasticities show that air transportation has the most elastic demand while food and beverage have an inelastic demand. Air transportation, shopping, and accommodation often have expenditure elasticities exceeding unity making them luxury goods during those periods. Results show that food and beverages are necessary goods. Estimated Morishima elasticities find air transportation and other transportation-related commodities are substitutes with the degree of substitution changing over time but are complementary in use with the remaining sub-industries. Marketing strategies from tourism agencies and governments should be flexible and respond to how consumers change expenditure over the business cycle.

Fleissig, A.R.. The Impact of Casino Gambling and Lotteries on Demand for Other 'Sin' Goods. Atlantic Economic Journal, 48(3), 327-338.

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Public policy aimed at reducing consumption of tobacco or alcohol products often results in purchases of lower-taxed alternatives. Many studies find tobacco and alcohol to be habit-forming, so taxing these commodities often has little impact in reducing purchases. There is much evidence that different alcohol and tobacco products are either substitutes or complements in use but these studies exclude the impact of casino gambling and lotteries. This is surprising given the evidence of high returns for companies investing in all types of 'sin' goods. The demand for 'sin' goods is analyzed using both myopic and rational habit-forming models. Durability was found to be largest for wine and tobacco and lowest for casino gambling. Tobacco and beer were the most net habit-forming commodities. All 'sin' goods were net habit-forming in the rational model, but under myopic habit formation, spirits and wine were net durable goods. The research highlights the importance of including casino gambling and lotteries, which are typically excluded when estimating substitution or complementarity between 'sin' goods. Casino gambling and lotteries are both net habit-forming and are substitutes in use for each other. Imposing taxes to reduce the misuse of alcohol and tobacco products is likely to have some unintended consequences, such as increases in personal expenditure on casino gambling and lotteries.

Fleissig, A.R., Swofford, J.L.. The Demand for Assets Through a Low Interest Rate Environment. Applied Economics, 52(60), 6540-6551.

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Asset demand is important in many areas of economics. To investigate this, we estimate a globally flexible dynamic Fourier asset demand specification and calculate Morishima elasticities of substitution for six asset categories for the U.S. This specification produces negative own price (user cost) elasticities. The Morishima elasticities show that each of the six asset groups is substitutes. These results suggest that monetary policy efficacy increases in recessions and support the Barnett Critique that central banks should not ignore substitution effects and portfolio adjustments among financial assets and Friedman and Schwartz's view that saving deposit assets should be included in money.

Fleissig, A.R.. The Impact of World War Two and Rationing on U.K. Expenditure in the Short and Long-Run. Journal of European Economic History, 49(3), 109-135.

World War Two, rationing, and shortages limited the amount of food and other goods available to households. The new welfare state of Clement Attlee's Labour Party and derationing were supposed to provide food and other consumption goods to meet the needs of households, but voters were dissatisfied. Churchill's Conservative Party, with a campaign promising to end rationing quickly, regained power. It is unclear how rationing affected households' expenditure adjustments in the short and long run. Our results show that income and own-price elasticities varied considerably in both the short and long run before, during and after the war. Varying elasticities provide insight into how households adjusted their expenditures over time. Food is typically an essential consumption item, but estimates show it was almost a luxury good during the war and in the postwar period. There is evidence that households were unable to make typical long-run desired expenditure adjustments during the war and for some time after it. Binding food rationing significantly affected spending on other goods and services. Rationing had a severe impact on household expenditures. The campaign to end rationing was pivotal in the Conservatives Party's landslide victory.

El-Shagi, M., Kelly, L.. What can we learn from country-level liquidity in the EMU?. Journal of Financial Stability, 42, 75-83.

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The recent experience during the debt and banking crises in the European Monetary Union (EMU) has demonstrated how important it is to consider liquidity (or rather the lack thereof) in macroeconomics. Similar to the Fed's policy during the US real estate crisis, the ECB took huge efforts to insert liquidity into the banking sector to prevent further financial turmoil, only to find that the transmission mechanism was severely hampered. Strong heterogeneity during the crises accentuated the difficulties of a common monetary policy. The main contribution of this paper is to show that properly measured liquidity contains substantial information on macroeconomic dynamics. Liquidity overcomes two problems of using interest rates (and interest rate spreads) as the main indicator of the monetary and financial side of the economy. First, contrary to the policy rate, they include information on the different impacts of monetary shocks between countries, thereby accounting for heterogeneity in the transmission mechanism and the different states of the banking sector. Second, (growth rates of) liquidity indicators are not subject to the zero lower bound problem and are thus particularly useful when considering samples, such as the recent crisis. We propose a range of liquidity indicators, based on Theil-Törnqvist index number, that are designed to account for measurement problems during times of financial turmoil, when liquidity preference – and thus the price of liquidity – can change quickly. We then study the information content of those variables.

Keating, J.W., Kelly, L.J., Smith, A.L., Valcarcel, V.J.. A Model of Monetary Policy Shocks for Financial Crises and Normal Conditions. Journal of Money, Credit and Banking, 51(1), 227-259.

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Deteriorating economic conditions in late 2008 led the Federal Reserve to lower the target federal funds rate to near zero, inject liquidity through novel facilities, and engage in large-scale asset purchases. The combination of conventional and unconventional policy measures prevents using the effective federal funds rate to assess the effects of monetary policy beyond 2008. We employ a broad monetary aggregate to elicit the effects of monetary policy shocks both before and after 2008. Our estimates align well with major changes in the Fed's asset purchase programs and yield responses that are free from price, output, and liquidity puzzles that plague other approaches.

Anderson, R.G., Duca, J.V., Fleissig, A.R., Jones, B.E.. New Monetary Services (Divisia) Indexes for the post-war US. Journal of Financial Stability, 42, 3-17.

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We construct Monetary Services (Divisia) Indexes at various levels of aggregation (the broadest of which is M4) from the late 1940s through 1967 employing methods designed to permit these historical series to be spliced to corresponding series currently published by the Center for Financial Stability (CFS), which begin in 1967. The annualized growth rate of our MSI M2 during 1947 to 1967 generally lies between the growth rates of conventional M1 and M2, while the growth rate of MSI M3 is below that of conventional M3 over the same period. Using spliced series, we find that the velocities of the MSI exhibit gradual upward trends from the late 1940s through 1978, with distinct upward shifts in the late 1970's and early 1980's, while the velocity of conventional M3 trends downward between 1953 and 1982. Using a Fourier demand model, we find elastic substitution between M1 and the non-M1 components of MSI M3 up to 1967, but inelastic substitution between bank and thrift deposits.

Binner, J.M., Chaudhry, S., Kelly, L., Swofford, J.L.. 'Risky' monetary aggregates for the UK and US. Journal of International Money and Finance, 89, 127-138.

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We extend the scope of monetary aggregation beyond capital certain assets that make up central bank data sets and identify groups of assets that form monetary aggregates composed of both capital certain and risky, capital uncertain, assets. We construct monetary aggregates for the US and UK using a superlative index and relax a key assumption of the Consumption Capital Asset Pricing Model (CCAPM), a one year planning horizon, by using forecasted returns on risky assets. Our new risky monetary aggregates perform well in VAR tests. We recommended exploring risky assets as providers of liquidity services in future research on this topic.

Hafer, J., Kelly, L., Onken, M.. Evaluating the efficacy of regulatory and technological innovation on carbon dioxide emissions: An application of structural break analysis. Economics Bulletin, 38(4), 2399-2409.

Starting as early as the 1950s, regulatory and technological innovations have played a co-causal role in the measurement and control of air pollution. "Technology-forcing" regulations, particularly early regulation in California, pushed the automobile industry to develop technology to mitigate carbon dioxide emissions, but as technology to measure carbon dioxide emissions was developed, more and better regulation was adopted. While the role of regulation in the development of new technology remains a topic of continued political debate, our analysis strongly supports the proposition that regulatory innovation played a significant role in the curtailment of carbon dioxide emissions since 1960.

Tabesh, H., Kelly, L., Poulose, C.. Herding Behavior in the Nairobi Securities Exchange. Journal of Applied Business and Economics, 20(3).

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In this study, we use 2010-15 daily data stock market from the Nairobi Securities Exchange (NSE) to investigate herding behavior among NSE market participants. We examine the impact of rising and falling markets, as well as exogenous factors such as political and regulatory instability, on herding behavior. Our findings are twofold. First, herding behavior differs by sector, moreover, each sector responds differently to rising and falling markets. Thus, failing to consider each sector separately may mask herding behavior. Second, herding behavior is most pronounced from 2013 through 2014, which was a time of both political and regulatory instability for Kenya.

Fleissig, A.R.. Who Benefits Most from Property Assessment Taxes? Evidence from Los Angeles County. Applied Economics Letters, 25(20), 1471-1474.

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Assessment caps on property taxes are often assumed to benefit affluent homeowners the most with little gains for low-income households. Quantile regression results for Los Angeles County show that on average effective property tax rates decrease by $1994 per year due to length of ownership in the 50th percentile because of California's Proposition 13 assessment cap. There is evidence of both horizontal and vertical inequity across the entire sample. Low-income households do benefit from California's assessment cap as they are typically infrequent movers but their effective tax rates decrease over time. However, the most affluent households by market value do not gain the most and there is no evidence of horizontal inequity for these homeowners. There is also no evidence of horizontal inequity for middle-income households. Property tax savings vary between $18,000 and $40,000, depending on the assessed value decile and percentage quantile.

Binner, J.M., Kelly, L.. Modeling Money Shocks in a Small Open Economy: The Case of Taiwan. The Manchester School, 85(S1), 104-120.

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El-Shagi, M., Kelly, L.J.. For they know not what they do: an analysis of monetary policy during the Great Moderation. Applied Economics Letters, 24(10), 717-721.

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We develop an empirical framework to show the importance of money during the Great Moderation, while accounting for the fact that monetary policy was exclusively conducted through interest rates. We estimate the impulse response functions and forecast error variance decomposition derived from a structural VAR with a least absolute shrinkage and selection operator–based lag selection. The variance decomposition suggests that a substantial component of macroeconomic variation has been driven by shocks to the money market, which were not only unintended by the Federal Reserve, but worse passed unnoticed allowing those shocks to accumulate over time.

Fleissig, A.R.. Changing Trends in U.S. Alcohol Demand. Atlantic Economic Journal, 44(3), 263-276.

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This study uses the Fourier globally flexible functional form and shows that elasticities of substitution for beer, wine and spirits vary over time. Own-price elasticities show that demand for alcohol is inelastic. Estimates of cross-price elasticities show much variation over time between spirits, wine and beer. Cross-price elasticities between beer and wine are generally elastic. Evidence of asymmetric substitution involving beer with wine or spirits suggests alcohol expenditure depends on which product undergoes a price change, which is typically not the case for spirits and wine. Changes in the demand for alcohol over time have important implications for the effectiveness of policy aimed at reducing externalities associated with heavy drinking. Morishima elasticities of substitution have different magnitudes compared to the cross-price elasticities but similar trends.

El-Shagi, M., Giesen, S., Kelly, L.. The Quantity Theory Revisited: A New Structural Approach. Macroeconomic Dynamics, 19(1), 58-78.

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While the long run relation between money and inflation is well established, empirical evidence on the adjustment to the long run equilibrium is very heterogeneous. In this paper we show, that the development of US consumer price inflation between 1960Q1 and 2005Q4 is strongly driven by money overhang. To this end, we use a multivariate state space framework that substantially expands the traditional vector error correction approach. This approach allows us to estimate the persistent components of velocity and GDP. A sign restriction approach is subsequently used to identify the structural shocks to the signal equations of the state space model, that explain money growth, inflation and GDP growth. We also account for the possibility that measurement error exhibited by simple-sum monetary aggregates causes the consequences of monetary shocks to be improperly identified by using a Divisia monetary aggregate.

Fleissig, A.R., Whitney, G.. A Revealed Preference Test of Rationing: A Monte Carlo Analysis. Economic Modelling, 45, 207-211.

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This paper develops and evaluates a rationing linear programming procedure that uses an "efficiency index" to allow for violations of revealed preference to be attributed to "almost" optimal choices. The procedure detects rationing using U.K. data. Various Monte Carlo simulations are performed to evaluate the ability of the procedure to differentiate between violations of revealed preferences caused by random error and those caused by rationing.

Fleissig, A.R., Jones, B.E.. The Impact of Commercial Sweeping on the Demand for Monetary Assets during the Great Recession. Journal of Macroeconomics, 45, 412-422.

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This study investigates how accounting for commercial sweeping affects estimates of elasticities of substitution between monetary assets over the period 1991 to 2012 using a Fourier flexible form. On the basis of the Fourier model, we find that adjusting the monetary data for commercial sweeps leads to higher average estimates for many elasticities of substitution over the sample period. The average value of an elasticity capturing substitution between currency and demand deposits and other checkable deposits nearly doubled when the elasticity was estimated using data that was adjusted for commercial sweeps as compared with unadjusted data. We also find that the share of commercial sweeps relative to total demand deposits eventually ended up lower following each of the past two recessions than it was leading up to them.

Fleissig, A.R.. Changes in Aggregate Food Demand Over the Business Cycle. Applied Economics Letters, 22(17), 1366-1371.

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The globally flexible Fourier functional form is used to provide estimates of how substitution between types of food varies over time. Estimates of Morishima elasticities of substitution between food and nonfood aggregates often show considerable variability over time, typically during recessions. In contrast, estimates from locally flexible functional forms only provide estimates at a single data point and fail to provide insight into changes in substitution over the sample. Evidence of changes in substitution over time has important policy implications, especially attempts to encourage increased consumption of fruits and vegetables.

Fleissig, A.R., Whitney, G.. Belgium relief fund, post war food shortages and the 'True' cost of living. Explorations in Economic History, 58, 93-106.

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A key criteria in measuring the true cost of living is the absence of non-price rationing. To examine how non-price rationing distorts conventional measures of the cost of living, we examine the case of Belgium following WWI. The economic fallout from WWI to Belgium was so severe that the Commission for Relief in Belgium provided considerable assistance after the war ended. Nonetheless, food shortages persisted even after international assistance ceased in 1919 and production in Belgium did not return to pre-war levels until the end of 1924. A nonparametric revealed preference test for fifteen food categories shows shortages for eggs, butter, potatoes, vegetables, and sugar for periods from 1920 to 1924. Estimated virtual prices for these five foods, in conjunction with actual prices for the other ten goods, show that the actual cost of living was severely underestimated. The virtual prices of these five goods are the prices at which consumers would have willingly paid to purchase them, given the observed quantities, along with their other purchases. In this respect they can be viewed as market clearing prices. Our findings reinforce the view that Belgium's population continued to endure the effects of constrained consumption and a lower standard of living after the war ended. Further the results show how much the welfare of the Belgium people improved when shortages began to decrease.

El-Shagi, M., Kelly, L.. Liquidity in the liquidity crisis: evidence from Divisia monetary aggregates in Germany and the European crisis countries. Economics Bulletin, 34(1), 63-72.

While there has been much discussion of the role of liquidity in the recent financial crises, there has been little discussion of the use of macroeconomic aggregation techniques to measure total liquidity available to the market. In this paper, we provide an approximation of the liquidity development in six Euro area countries from 2003 to 2013. We show that properly measured monetary aggregates contain significant information about liquidity risk.

Keating, J.W., Kelly, L.J., Valcarcel, V.J.. Solving the price puzzle with an alternative indicator of monetary policy. Economics Letters, 124(2), 188-194.

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We identify the effects of monetary policy shocks on macroeconomic variables in VARs using the Divisia M4 measure of money as the policy indicator variable. We obtain theoretically sensible responses—whether or not a commodity price index is included. Thus, we eliminate the well-known empirical puzzles from the VAR by a novel choice in a policy variable, rather than the usual attachment of an ad hoc variable.

Kelly, L., Binner, J., Chang, C., Tseng, Y.. Monetary policy in Taiwan: the implications of liquidity. Handbook of Asian Finance: Financial Markets and Sovereign Wealth Funds (D. Lee and G. Gregoriou, eds.), 1, 221-237. Book Chapter

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Fleissig, A.R., Whitney, G.. Estimating Demand Elasticities Under Rationing. Applied Economics, 46(4), 432-440.

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Eliminating rationing in the United Kingdom following the Second World War was a concern for policy-makers because of potentially large fluctuations in post-war prices and the impact on unrationed goods. This study shows that in using virtual prices, elasticities can be estimated from a 'free' demand system consistent with observed consumer choices. Substitution estimates without accounting for rationing are misleading. In contrast, using virtual prices and estimating a 'free' market system yield results similar to those of the pre-war period. Results show that food rationing affected expenditure across unrationed goods. Rationing on other services had little effect on expenditure across unrationed goods.

Fleissig, A.R.. Return on Investment from Training Programs and Intensive Services. Atlantic Economic Journal, 42(1), 39-51.

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This study includes the likelihood of finding a job and retaining employment as well as eligibility for unemployment benefits to estimate the return on investment (ROI) for both job training and intensive services programs. The augmented ROI for job training programs and intensive job services from California One-Stop Centers are positive. This suggests that these programs do provide benefits. The estimated augmented ROI for individuals enrolled in job training programs and intensive job services are similar. In contrast, traditional approaches that omit important employment characteristics significantly overestimate the ROI. Monte Carlo simulations show that changing program costs affect the augmented ROI for training programs but have minimal impact on the augmented ROI for intensive services.

Fleissig, A.R., Whitney, G.. Virtual prices and the impact of house rationing in Belgium on consumer choices. Explorations in Economic History, 50(2), 308-315.

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Farka, M., Fleissig, A.R.. The Impact of FOMC Statements on the Volatility of Asset Prices. Applied Economics, 45(10), 1287-1301.

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This article examines the impact of Federal Open Market Committee (FOMC) statements on asset prices. Statements are found to have a much more pronounced impact on the volatility of asset prices than interest rate surprises. They influence primarily stock returns, intermediate and long-term yields, whereas short-term rates are driven both by statements and by interest rate surprises. We also find that the regime shift of May 1999 has improved the effectiveness of monetary policy, as reflected in an overall reduction in market volatility during the most recent regime. In addition, markets are equally well-prepared for the upcoming rate decision in both regimes, but the process of adjustment depends on whether a statement was issued in the old regime or not. When a statement is issued, price adjustments are very similar across both periods, whereas if no statement is issued then the rate of adjustment towards the new value is more gradual and occurs throughout the entire intermeeting period.

Tebaldi, E., Kelly, L.. Measuring economic conditions: an extension of the Stock/Watson methodology. Applied Economics Letters, 19(18), 1865-1869.

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This study develops an economic indicator tailored to measure economic conditions at the state level by recognizing that a state's economy is an integrated part of the region and responds to both regional and national economic outlooks. This article applies our methodology to the state of Rhode Island. In the case of Rhode Island, the addition of a regional economic indicator appears to make a significant improvement over the Federal Reserve Bank (FED) of Philadelphia coincident index. Therefore, this preliminary study indicates that it is worthwhile to expand this project to include all 50 states.

Farka, M., Fleissig, A.R.. The Effect of FOMC Statements on Asset Prices. International Review of Applied Economics, 26(3), 387-416.

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Given their increased importance during recent years, FOMC (Federal Open Market Committee) statements can have a significant impact on asset prices. To capture the effect of FOMC statements on asset prices, an indicator variable is created that takes into account the information content of policy statements. Results show that both 'interest rate surprises' and 'FOMC statements' affect the mean and the volatility of asset prices. The volatility impact is tent-shaped, jumping within the policy announcement interval and declining before and after the release. FOMC statements have a much more pronounced impact on stock returns, intermediate and long-term yields, while short-term rates are largely driven by target rate decisions. We also find that the evolution of the language of the FOMC statements does matter to market participants and, in particular, the 'forward-looking' language adopted in mid-2003 has reduced market volatility associated with 'interest rate surprises' on announcement days.

Kelly, L.. The current stock of money: an aggregation theoretic measure of narrowly defined money. Applied Economics Letters, 18(7), 659-664.

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While the usual definition of narrowly defined money is in terms of grouping of assets to be included in the aggregate, the Current Stock of Money (CSM) focuses on the function of those assets. By isolating the portion of each monetary asset that functions as currency, the CSM measures the amount of currency needed to provide an equal level of monetary service to that of the current monetary portfolio. This makes the CSM suitable for use in any model that contains currency, that is, narrowly defined money. Thus, the main contributions of this research are to derive the CSM and to show that the Currency Equivalent (CE) index is an unbiased measure of the CSM.

Kelly, L., Barnett, W.A., Keating, J.W.. Rethinking the liquidity puzzle: Application of a new measure of the economic money stock. Journal of Banking & Finance, 35(4), 768-774.

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Historically, attempts to solve the liquidity puzzle focus on narrowly defined monetary aggregates, such as non-borrowed reserves, the monetary base, or M1. Many of these efforts fail to find a short-term negative correlation between interest rates and monetary policy innovations. More recent research uses sophisticated macroeconomic and econometric modeling. However, little research has investigated the role measurement error plays in the liquidity puzzle, since in nearly every case, work investigating the liquidity puzzle has used one of the official monetary aggregates, which have been shown to exhibit significant measurement error. In this paper, we examine the role that measurement error plays in the liquidity puzzle by (i) providing a theoretical framework explaining how the official simple-sum methodology can lead to a liquidity puzzle, and (ii) testing for the liquidity effect by estimating an unrestricted VAR.

Fleissig, A.R., Whitney, G.. A Revealed Preference Test of Rationing. Economics Letters, 113(3), 234-236.

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This paper derives a revealed preference test for utility maximization under rationing and can detect, for which goods rationing is binding without specifying a functional form or imposing rationing constraints prior to estimation. For UK data from 1920–55, we find evidence of utility maximization under rationing with rationing binding for food and other services. Estimated virtual prices exceed observed food prices by 16.5% in 1947 and observed prices of other services by 10.9% in 1952.

Drake, L., Fleissig, A.R.. Substitution between monetary assets and consumer goods: New evidence on the monetary transmission mechanism. Journal of Banking & Finance, 34(11), 2811-2821.

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This paper presents important new evidence on the monetary transmission mechanism in the context of the degree of substitution across UK monetary assets and consumption goods. Specifically, our empirical results show that durable goods expenditures are a relatively powerful element of the monetary transmission mechanism with semi-durables consumption having a somewhat smaller impact. Our results also provide an explanation for the "puzzle" that the nominal expenditure share of durables has remained relatively stable in recent years while the real expenditure share has increased dramatically. In addition, this paper demonstrates that the potential bias in substitution estimates from using artificial break-adjusted monetary data can be reduced by using the relatively new non-break adjusted monetary data produced by the Bank of England.

Kelly, L.. The stock of money and why you should care. Measurement Error: Consequences, Applications and Solutions (Advances in Econometrics, Vol. 24), 24, 237-250. Book Chapter

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In this chapter, I will examine the problems created by incorrectly using a simple sum monetary aggregate (SSUM) to measure the monetary stock. Specifically, I will show that SSUM confounds the current stock of money (CSM) with the investment stock of money (ISM) and that this confounding leads the SSUM to report an artificially smooth monetary stock. This smoothing causes important information about the dynamic movements of the monetary stock to be lost. This may offer at least a partial explanation of why so many studies find that money has little economic relevance. To that end, we will conclude the chapter by examining a reduced form backward looking IS equation to determine whether monetary aggregates contain information about real GDP gap. This chapter differs from previous work in monetary aggregation in that it focuses on smoothing of the monetary stock data caused by the use of simple sum methodology, where the previous work focuses on the bias exhibited by SSUMs.

Drake, L., Fleissig, A.R.. Potential biases in substitution estimates and violations of regularity conditions. Measurement Error: Consequences, Applications and Solutions (Advances in Econometrics, Vol. 24), 24, 27-60. Book Chapter

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This chapter examines factors that cause violations of regularity conditions and biases in estimates of substitution. In the context of the Fourier demand system, failing to impose curvature restrictions but correcting for serial correlation results in few violations of the curvature conditions. In contrast, imposing curvature restrictions without correcting for serial correlation biases substitution estimates and can cause violations of monotonicity. For serially correlated data, results suggest that correcting for serial correlation may be more important than imposing curvature. Furthermore, the artificially break-adjusted data that are inconsistent with consumer optimization can severely bias estimates. Results from the Bank of England's (BOE) preferred non-break-adjusted data establish that money and goods are substitutes in demand.

Fleissig, A.R., Whitney, G.. Testing for Weak Separability. Measurement Error: Consequences, Applications and Solutions (Advances in Econometrics, Vol. 24), 24, 107-129. Book Chapter

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A new nonparametric procedure is developed to evaluate the significance of violations of weak separability. The procedure correctly detects weak separability with high probability using simulated data that have violations of weak separability caused by adding measurement error. Results are not very sensitive when the amount of measurement error is miss-specified by the researcher. The methodology also correctly rejects weak separability for nonseparable simulated data. We fail to reject weak separability for a monetary and consumption data set that has violations of revealed preference, which suggests that measurement error may be the source of the observed violations.

Barnett, W.A., Keating, J.W., Kelly, L.. Toward a bias corrected currency equivalent index. Economics Letters, 100(3), 448-451.

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The currency equivalent index measures the discounted economic capital stock of money producing the monetary service flow, but does so under assumptions that cause downward bias. We propose an extension that will correct for a significant amount of this bias.

Fleissig, A.R., Whitney, G.. A nonparametric test of weak separability and consumer preferences. Journal of Econometrics, 147(2), 275-281.

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Two stochastic nonparametric procedures are developed to evaluate the significance of violations of weak separability. When the data have measurement error, we show that the necessary and sufficient weak separability conditions of Varian [Varian, H., 1983. Nonparametric tests of consumer behavior. Review of Economic Studies 50, 99–110] must also satisfy the Afriat inequalities. The tests detect weak separability with high probability for weakly separable data. In addition, the procedures correctly reject weak separability for both nonseparable and random utility simulated data sets. The tests also fail to reject weak separability for a monetary and consumption data set which suggests that measurement error may be the source of the observed violations.

Jones, B.E., Fleissig, A.R., Elger, T., Dutkowsky, D.H.. Monetary Policy and Monetary Asset Substitution. Economics Letters, 99(1), 18-22.

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This paper shows that changing the target Federal Funds rate induces changes in relative user costs of monetary assets. Estimated Morishima elasticities of substitution from the Fourier Flexible form reveal greater substitution from transactions assets and savings deposits into small time deposits than into retail money market mutual funds.

Drake, L., Fleissig, A.R.. A Note on the Policy Implications of Using Divisia Consumption and Monetary Aggregates. Macroeconomic Dynamics, 12(1), 132-149.

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Using U.K. data that are consistent with utility maximizing behavior by consumers, we construct aggregates for both consumption goods (nondurables and services) and monetary assets that are consistent with economic aggregation theory. Using these aggregates and the stock of durable goods, we estimate the elasticities of substitution between various consumption goods and monetary assets. These estimates are compared to the corresponding results from conventional monetary and consumption aggregates. The results give important information for monetary policy and the monetary transmission mechanism. In particular, these substitution estimates provide insight into the recent changes in expenditure on durable goods. We also show that the use of conventional U.K. consumption and monetary aggregates often give incorrect estimates of substitution and can provide misleading policy insights.

Jones, B.E., Fleissig, A.R., Elger, T., Dutkowsky, D.H.. Retail Sweep Programs and Monetary Asset Substitution. Economics Letters, 99(1), 159-163.

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This paper examines how retail sweep programs affect monetary asset substitution. Estimates from the Fourier flexible form reveal that sweeping generates systematic and sometimes large distortions in estimated bank depositor substitution elasticities.

Fleissig, A.R., Whitney, G.. Quantity Constraints and Violations of Revealed Preference. Functional Structure Inference (International Symposia in Economic Theory and Econometrics, Vol. 18; W.A. Barnett and A. Serletis, eds.), 18, 23-32. Book Chapter

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Fleissig, A.R., Whitney, G.. Testing additive separability. Economics Letters, 96(2), 215-220.

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We develop a revealed preference procedure to test if violations of additivity are due to measurement error. It detects additivity for simulated data and has power to reject nonseparable data. For interwar data, additivity is detected for two "super" groups.

Drake, L., Fleissig, A.R.. Adjusted Monetary Aggregates and U.K. Inflation Targeting. Oxford Economic Papers, 58(4), 681-705.

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This study shows how to construct monetary aggregates using a procedure to adjust the simple-sum, Divisia and empirical monetary aggregates to be consistent with weak separability. The corresponding adjusted monetary aggregates have considerable leading indicator information and provide the most accurate predictions of inflation over the Bank of England's two year forecast horizon.

Fleissig, A.R., Whitney, G.A.. Testing for the Significance of Violations of Afriat's Inequalities. Journal of Business and Economic Statistics, 23(3), 355-362.

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Two new nonparametric procedures are developed to evaluate the significance of violations of revealed preference found by standard nonstochastic tests. The tests with high probability correctly detect utility maximization for data generated with measurement error. The procedures are not very sensitive to misspecifying the amount of error that could have caused the data to violate revealed preference, and the tests have power against an alternative of random behavior. Both tests fail to reject the null of rational utility maximization from a monetary dataset that has violations of revealed preference.

Drake, L., Fleissig, A.R.. Semi-Nonparametric Estimates of Currency Substitution: The Demand for Sterling in Europe. Review of International Economics, 12(3), 374-394.

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The paper presents new evidence of significant substitution between European domestic monetary assets and foreign holdings of sterling. The finding of significant cross-country currency substitution implies reduced costs of transition towards monetary union and easier European policy convergence. Elasticities of substitution, using the Morishima measure, are estimated from the semi-nonparametric Fourier flexible form.

Fleissig, A.R., Rossana, R.J.. Are Consumption and Government Expenditures Substitutes or Complements? Morishima Elasticity Estimates from the Fourier Flexible Form. Economic Inquiry, 41(1), 132-146.

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This article provides estimates of Morishima elasticities of substitution between private consumption expenditures (nondurable goods, services, and the stock of durable goods) and government expenditures (federal defense expenditures, federal nondefense expenditures, and state and local expenditures), finding consistent evidence that private consumption and government expenditures are net Morishima substitutes. Elasticities of substitution vary over our sample period, estimated elasticities are generally asymmetric, and short-run elasticity estimates differ from unity. In the long run, substitution elasticities remain asymmetric and vary over time. Our estimates are free of arbitrary functional form assumptions that can bias statistical inferences arising from our optimization model.

Fleissig, A.R., Whitney, G.. A New PC-Based Test for Varian's Weak Separability Conditions. Journal of Business and Economic Statistics, 21(1), 133-144.

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This article develops a new method to evaluate revealed preference separability conditions. In contrast to previous studies, our results generally find weak separability, even when datasets have some measurement error. In addition, revealed preference and weak separability appear robust to measurement error, different price distributions, and alternative preference settings. Measurement error generally results in relatively few violations of revealed preference or weak separability.

Drake, L., Fleissig, A.R., Swofford, J.L.. A Semi-Nonparametric Approach to Neoclassical Consumer Theory and the Demand for UK Monetary Assets. Economica, 70(277), 99-120.

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Fleissig, A.R., Serletis, A.. Semi-Nonparametric Estimates of Substitution between Canadian Monetary Assets. Canadian Journal of Economics, 35(1), 78-91.

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Fisher, D., Fleissig, A.R., Serletis, A.. An empirical comparison of flexible demand system functional forms. Journal of Applied Econometrics, 16(1), 59-80.

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This paper compares the performance of eight frequently used flexible forms that are either (1) locally flexible, (2) 'effectively globally regular', or (3) asymptotically globally flexible. Results show that the functions with global properties generally perform better, particularly those models having asymptotic properties. Results, using US consumption data, indicate substitutability among the components of consumption at most data points. There is also some interesting substitution volatility around the time of recessions in the USA.

Fleissig, A.R., Strauss, J.. Panel Unit Root Tests of OECD Convergence. Review of International Economics, 9(1), 153-162.

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This paper uses three panel unit-root tests and finds that real per capita GDP for OECD countries and a European subsample converge stochastically for the period 1948-87 but not for the entire sample of 1900-87. For the postwar period, the differential in income gaps or speed of adjustment is eliminated at an annual rate of 4-8% for OECD economies, and 6-9% for European economies.

Fleissig, A.R., Kastens, T., Terrell, D.. Evaluating the semi-nonparametric Fourier, AIM, and neural networks cost functions. Economics Letters, 68(3), 235-244.

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This study compares how well three semi-nonparametric functions, the Fourier flexible form, asymptotically ideal model, and neural networks, approximate simulated production data. Results show that higher order series expansions better approximate the true technology for data sets that have little or no measurement error. For highly nonlinear technologies and much measurement error, lower order expansions may be appropriate.

Fleissig, A.R., Strauss, J.. Panel Unit Root Tests of Purchasing Power Parity for Price Indices. Journal of International Money and Finance, 19(4), 489-506.

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This paper adopts four panel unit root tests to evaluate PPP over the floating period for six different price indices. Results generally support PPP, albeit the speeds of adjustment differ considerably between price indices and test procedures. The degree of contemporaneous and serial correlation as well as heterogeneity of the series in the panel affect stationarity and the speed of mean reversion.

Fleissig, A.R., Gallant, A.R., Seater, J.J.. Separability, Aggregation, and Euler Equation Estimation. Macroeconomic Dynamics, 4(4), 547-572.

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We derive a seminonparametric utility function containing the constant relative risk aversion (CRRA) function as a special case, and we estimate the associated Euler equations with U.S. consumption data. There is strong evidence that the CRRA function is misspecified. The correctly specified function includes lagged effects of durable goods and perhaps nondurable goods, is bounded as required by Arrow's Utility Boundedness Theorem, and has a positive rate of time preference. Constraining sample periods and separability structure to be consistent with the generalized axiom of revealed preference affects estimation results substantially. Using Divisia aggregates instead of the NIPA aggregates also affects results.

Fleissig, A.R., Hall, A., Seater, J.J.. GARP, Separability, and the Representative Agent. Macroeconomic Dynamics, 4(3), 324-342.

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We examine whether annual, quarterly, and monthly U.S. aggregate consumption data could have been generated by a utility-maximizing representative agent with intertemporally separable utility. The model appears inapplicable over the full time periods covered by the NIPA data, which are the sample periods often used in the literature. The model does appear applicable, however, over long subsamples. The data also are inconsistent with separability assumptions routinely made in the literature. In particular, the main categories of consumption (nondurables, services, and durables) are not mutually separable. We consider the implications of our results for inference about consumption based on the representative-agent model.

Fleissig, A.R., Strauss, J.. Is OECD Real Per Capita GDP Trend or Difference Stationary? Evidence from Panel Unit Root Tests. Journal of Macroeconomics, 21(4), 673-690.

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Panel unit root tests are used to evaluate if real per capita GDP for OECD economies are trend or difference stationary. The panel approaches require that the series in the panel are independent, but evidence from the correlation matrix of the residuals indicates dependence. The panel unit root procedures are thus adjusted to allow for correlation in the data using different approaches. There is overwhelming evidence that the OECD data are trend stationary using bootstrap methods that accommodate more general forms of serial and cross correlation in the data compared to the standard approach of subtracting cross sectional means.

Drake, L., Fleissig, A.R., Mullineux, A.. Are 'Risky' Assets Substitutes for 'Monetary Assets'? Evidence from an AIM Demand System. Economic Inquiry, 37(3), 510-526.

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The paper uses an asymptotically ideal model to estimate substitution elasticities between financial assets held by the U.K. personal sector. An important innovation is to extend the range of assets to include 'risky' assets as well as capital certain 'monetary' assets. The most significant result is the evidence of substitution between 'risky' assets and 'cash' assets. Also, as risk aversion increases substitution between 'risky' assets and 'cash' assets generally falls.

Fisher, D., Fleissig, A.R., Serletis, A.. Monetary aggregation, rational expectations, and the demand for money in the United States. North American Journal of Economics and Finance, 9(1), 1-13.

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This paper tests the demand for money under rational expectations to see if it is sensitive to the choice of a monetary aggregate. Divisia and simple-sum aggregates of money, including M1, M1A, M2, M3, and L, are compared as to their consistency with rational expectations using monthly U.S. data from 1960.1 through 1993.5. This produces results consistent with rational expectations based on narrow measures of money (M1 and Divisia M1), primarily. Models employing the broader measures of money often reject the rational expectations hypothesis. Thus the choice of monetary aggregate appears to be crucial in evaluating the consistency of rational expectations in money demand models. The paper also discusses the policy implications of this research.

Fisher, D., Fleissig, A.R.. Monetary Aggregation and the Demand for Assets. Journal of Money, Credit and Banking, 29(4), 458-475.

Fleissig, A.R.. The Dynamic Laurent Flexible Form and Long-Run Analysis. Journal of Applied Econometrics, 12(6), 687-699.

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Fleissig, A.R., Swofford, J.L.. Dynamic Asymptotically Ideal Models and Finite Approximation. Journal of Business and Economic Statistics, 15(4), 482-492.

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The authors extend W. A. Barnett and A. Jonas's (1983) asymptotically ideal model (AIM) to model for the possibility that the data were generated by a dynamic process. Prediction errors for dynamic and static AIM models are compared for various simulated datasets. Monetary data are also used to evaluate the AIM specifications. There is substantial evidence that an AR(1) correction considerably improves the quality of low-order finite approximations of AIM with the cost of estimating only one additional parameter. Furthermore, restricting a dynamic AIM to approximate only linear homogenous functions often results in severe misspecification.

Fleissig, A.R., Strauss, J.. Unit Root Tests on Real Wage Panel Data for the G7. Economics Letters, 56(2), 149-155.

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Using a unit root test for panel data, we find that real wage innovations in most G7 economies are temporary, rapidly mean reverting, and have no permanent component. Results are sensitive to an identical cross-equation restriction on all series.

Fleissig, A.R.. The Consumer Consumption Conundrum: An Explanation. Journal of Money, Credit and Banking, 29(2), 177-192.

Fleissig, A.R., Kastens, T., Terrell, D.. Semi-nonparametric Estimates of Substitution Elasticities. Economics Letters, 54(3), 209-215.

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This paper uses semi-nonparametric and Diewert-flexible forms to estimate substitution elasticities between capital and labor. Results show that capital and labor are substitutes. Estimated elasticities from semi-nonparametric forms vary more over time than those from Diewert-flexible forms.

Fleissig, A.R.. Substitution elasticities between durable and nondurable goods in the United States: New evidence from the dynamic Laurent system. Empirical Economics, 22(1), 1-13.

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This paper uses the dynamic Laurent demand system to jointly estimate the service flows from durable and nondurable goods. The parameter estimates are used to obtain the Morishima elasticity of substitution between goods for the United States from 1960:1 to 1991:4. One of the significant results of this study is that the Morishima elasticities of substitution vary over time instead of being constant. This result implies that the use of the CES functional form gives a poor approximation of the demand system for the data used in this paper. Another important result is that consumers adjust to their long-run equilibrium holding of consumption goods slowly rather than quickly.

Fleissig, A.R., Swofford, J.L.. A Dynamic Asymptotically Ideal Model of Money Demand. Journal of Monetary Economics, 37(2), 371-380.

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We estimate a dynamic asymptotically ideal model of a system of money demand equations. This specification allows incomplete portfolio adjustment. We base our policy conclusions on Morishima elasticities, because as Blackorby and Russell (1989) show, the Allen-Uzawa elasticities can give misleading results. We find that cash assets, savings deposits, and small time deposits are all substitutes for each other. These results imply that monetary authorities should target a relatively broad monetary aggregate that includes these assets, if policy is to have predictable effects on the economy.

Fleissig, A.R., Fisher, D.. Monetary Aggregates and the P* Model of Inflation. International Review of Comparative Public Policy, 8, 157-178.

Fisher, D., Fleissig, A.R.. Money demand in a flexible dynamic Fourier expenditure system. Federal Reserve Bank of St. Louis Review, 76(2), 117-128.

Fleissig, A.R., Grennes, T.. The Real Exchange Rate Conundrum: The Case of Central America. World Development, 22(1), 115-128.

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This paper evaluates alternative measures of the real exchange rate for Mexico and Central American countries. Bilateral and multilateral real exchange rates using the consumer price index, wholesale price index and gross domestic product deflator are calculated. There are often significant differences between the bilateral and multilateral measures of the real exchange rate. Real exchange rates based on consumer price indexes and gross domestic product deflators were found to be more closely related to each other than either one was to the wholesale price index.

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