Posit money includes everything in M1-M3 and Treasurys per John Hall (says use broad divisia aggregate). Estimate a regression of log GDP deflator divided by Divisia M4 and real GDP over the 1967-2019 period (Engle-Granger).
p = 8.11 + 1.33(m4-y)
p is the log GDP deflator, m4 is log divisia M4 including Treasurys, and y is log real GDP.
Johansen cointegration tests indicate up to 3 (!) cointegrating vectors when p, m4 and y are entered separately. Given this result, I’ll just use the E-G results which seem more sensible. This yields the following fitted values.
Figure 1: Log US GDP deflator (blue), and fitted values (brown). NBER defined peak-to-trough recession dates shaded gray. Source: BEA 2023Q2 advance release, NBER, and author’s calculations.
So when people (well, Econned) laud the success of what one person calls ecological monetarism, I say, just look at the data! The predicted price level is 26% higher (in log terms; bigger if we base it on current price level).
Thanks for the update.
What prompted my comment were the charts showing the divisia indices and divisia velocity.
To be honest, your results do not surprise me that much, particularly as someone who has done these regressions before. One problem with the regression is that log changes in prices and log changes in money are not stationary. Think the US inflation boom in the 1970s and subsequent easing. There is a small literature on money and prices being I(2) and how the coin reheating relationship is a little more complicated than what you present. So I would agree that if you want to use a simple count rating relationship between these variables to predict prices, it’s not going to work well. I agree with that 100%. A somewhat more sophisticated model might say something different, but it won’t be as extreme a forecast as the one that you show.
John Hall: Did consider this issue of I(2) variables (e.g., price level), since this invalidates use of ARDL. Neither Barnett et al. nor Bordo et al. use the price level (in logs) alone. Money deflated by GDP deflator and velocity do appear to by I(1) using ERS and KPSS tests. Results likely will differ if I truncate to 1986 onward as Bordo does.
Apologies also for the autocorrect fails. iPhone does not like cointegration I guess.
Menzie Chinn,
1) Please provide your preferred definition of the term “laud” as you’ve chosen to use above.
2) Please provide evidence of any comment that I’ve made which supports your claim that I “laud the success of what one person calls the ecological Quantity Theory of Money”
3) please try to be an honest and objective person
and econned shows up with more professional jealousy of prof chinn. best just to keep quiet than show your true colors econned.
Econned: Since you provided the link to the article, I thought you were in agreement Are you in the habit of providing links to articles you don’t approve of?
Menzie Chinn,
I’m in the habit of providing links to articles as evidence. My agreeing or disagreeing with the substance isn’t at all relevant here. As you’re aware, the comment you’ve made multiple posts about was as follows: “those who see value in QTM use a divisia index as the monetary aggregate”. The link I provided directly and clearly supports that comment. You made an absolutely silly post about M2 and you you keep clowning yourself.
Maybe be a man for once and reply to the link I provided if you’re so concerned with QTM and unconvinced by the link.
Since the question is on habits… you’re in the habit of making a fool of yourself due to unfounded and erroneous assumptions – this certainly isn’t the first instance. You can’t seem to fathom that some people are able to discuss issues without necessarily “taking sides”. I’ve pointed out your Trump-like tendencies in the past and your recent myopic and sloppy comments are yet another example.
MAGA – Menzie’s Assumptions Gone Awry
@ Stalker
And the readers here are supposed to believe someone like you, who has exhibited childlike hypersensitivity to criticism, would allow such unwarranted and excoriating comments towards yourself to be posted if you had a blog and were managing comments?? I doubt anyone, including yourself, if you have a scintilla of ability to soul-search, believes that you would, or could.
People can have disputes without grade school level lashing out.
“I’m in the habit of providing links to articles as evidence.”
Actually you fail to provide links. Why – because you are lazy or incompetent or just a pathetic little jerk?
“Maybe be a man for once”
Seriously? This from a two year old child?
Menzie Chinn,
When can we expect a new post regarding your conversation with Cameron Harwick? The conversation where you tell him to “just look at the data”? Can’t wait to read all exchanges in full.
Dude – i read his nonsense. I commented on his nonsense. But no – I do not expect you to acknowledge that as we have all come to realize what a dishonest slime you really are.
“The predicted price level is 26% higher”
Yep – looking at the data. Cameron Harwick did a lot of babbling around the data but never got around to admitting this. Or maybe little Econned did not understand the post (again).
Please go away. You are a dishonest piece of trash who routinely insults our host for no damn reason. Aren’t there right wing blogs where your garbage would be appreciated? Go there and leave economics to the adults.
“please try to be an honest and objective person”
This is rich from a liar like you.
1) Please learn to use a dictionary.
2) Please get down off your high horse.
3) Please try to be an honest and objective stalker.
May I make 3 points here?
(1) Your original post was referring to the nonsense from Tim Congdon who used M2 not a broader measure of “money”. I guess Econned could not take notice of that because had he done so and had he any integrity (cough) he would have attacked Congdon not you.
(2) Econned dared to suggest you failed to read “Bordo (2023)” without letting your readers know WTF he was referring to. I provide a link to the paper which was Hoover quality research. So yea – I at least read the paper. I suspect you did do.
(3) Econned did no real work here but you did. And his vaunted little QTM still does not pass the laugh test.
Now Econned owns our host and the rest of us a big apology but do not expect this dishonest troll to do nothing more than attack, attack, attack. After all – that is all Econned has.
Why is you Puh-hudzez guys, like, and stuff, so obsessed with amountative amounts of moneyz amounts, like, and, er, that, and stuff?? The old lady in the TV addzez sellingz the goldzes coinz, and stuff, says that “money is just paper”. Money is just paper. Don’t youzes Puh-hudzez guyz like, figurz and desiferinz that, like, and, er, and stuff?? Oh, my braine is fatigeeeeeewwwd now. It hurts. My braine hurtz, like, and, er, that, and stuff..
Puh-hudzez. That’s like Post Hole Diggers in the Vietnam era?
I’ll never tell. Acronyms are closely held secrets for the cool insiders of 2023. Only your teenage niece’s phone knows for sure.
Did anyone else find it mind-bending that L. Randall Wray and Scott Sumner were communicating (though not directly to each other) in the same blog thread?? Randall Wray I respect somewhat. Sumner gives me the giggles with his twaddle.
“one person calls the ecological Quantity Theory of Money”
Cameron Harwick did just that. It was a comical blog post but Econned thinks it is something worth reading? Seriously?
Haven’t digested this one yet. I guess the normal reaction would be to say I’m “sad”. Based on location of the shooting, and early rumors….. I’m not entirely certain how it makes me feel.
https://www.latimes.com/california/story/2023-08-23/mass-shooting-cooks-corner-biker-bar-trebuco-orange-county
Full confession. I skipped the GOP debate last night but this caught my eye:
Rep. Lauren Boebert (R-Colo.) lauded Ramaswamy’s reply.
“@VivekGRamaswamy is the only candidate on the stage that committed to ending Ukraine funding. The uniparty is alive and well with others. Secure America’s border FIRST!” the ultraconservative congresswoman wrote Wednesday.
Ramaswamy is JohnH’s kind of guy! But I also hear Nikki Lightweight went off on Ramaswamy. Yea – I’m glad I missed this clown show.
It strikes me that Ramaswamy’s strategy is to be boot-licker numerous uno to the Orange Menace, in case the Orange Menace falls out of the race. Ramaswamy called the Menace the best president in the past century, in history, whatever it was. Ramaswamy snuggles up to the best boyfriend of the Menace. Ramaswamy has no government experience, but has the “I’m rich” story, just like the Menace.
Ramaswamy is a pure opportunist. Not that that sets him apart from the rest of the field. But his particular approach to opportunism is to bet that a big Orange-Menqce-shaped hole is going to open up, and he is shaping himself to fit that hole.
You must have watched. For that – you have my pity. But thanks for the update.
I heard one other disturbing thing – DeSantis wants to declare war on Mexico. Yea – he is one sick puppy.
I hesitate to tell you this for fear you’ll gloat and get a big head, but great minds think alike. Or are we just observing the obvious?? Don’t answer that.
@ Macroduck
For all the closet China wonks who are Econbrowser regulars, I humbly consider myself a China Economics hobbyist, but this is for the wonks here:
https://twitter.com/Brad_Setser/status/1694741315848692127?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
Our good man Mr. Setser, being his usual treasure trove self. I try for days on end to come up with clever things to say and this Setser son-of-a-gun involuntarily burps these gems up. The nerve of some people.
That chart is freaky. Reserves and flows track and track and track. Then they don’t track. And not just don’t track. Strong positive correlation (using eyeball analysis) to strong negative correlation.
Curiouser and curiouser.
I’m no doubt telling you something you already knew. but just to be sure, the Chinese authorities try their darnedest to hide these moves/decisions, so that is sort of what the Belgium accounts represent (the very light green bars, which to my bad eyes can easily confuse with the LT Agencies), the part they thought they could hide by using the Belgium accounts as a “proxy” or however you wanna word it.
I read somewhere (It may have been Setser who said it himself) that the Chinese authorities were kinda pissed at Setser for figuring out how to tabulate these moves they were trying to hide. Which as you might imagine, tickled my funny bone.
I watched portions of it. It was better than I thought it would be, but I had very low expectations going in. It appears rent-a-swami is going for donald trump’s VP. He was kissing orange booty all night. He’s scouted the Republican public opinion polls and checkmarks whatever box he thinks illiterates want to hear.
rent-a-swami! Almost as sweet as Nikki Lightweight.
Did 6 of these 8 clowns raise their hands to say they will support Trump even if he is indicted? No one among those 6 should ever be allowed to run for President.
I watched Nicole Wallace’s interview of Judge Michael Luttig. For a conservative – he is one awesome dude.
Yeah. I hadn’t thought of that. After the attempt to lynch Pence, VP to the Oramge One is an odd aspiration. But Ramaswamy is an odd guy.
I just Ramaswamy’s quip about climate change. Did CoRev write that BS for him?
I think the general idea is that if you are young enough and the candidate is old enough then you can wait and go from VP to P in a missed heartbeat. Even if the Orange disaster lived through all 4 years, then the VP can do a “George Bush I” and ride on the populists coattails. The guy supposedly has a nice smile, is completely ignorant, and kisses orange a** with the very best of them. Perfect VP for Trump.
“If I were Mr. Prigozhin, I would remain very concerned. NATO has an open-door policy; Russia has an open-windows policy. And he needs to be very focused on that” – Sec. of State Blinken a few weeks ago.
So it may have been Blinken that killed Prigozhin; by suggesting he could defect. Add a boy Blinken – that was brilliant.
I know I’m late to the WeChat party here, but I just want to say, those effeminate guys who write the Broadway operettas, really know what they are doing:
https://twitter.com/michaelxpettis/status/1302586830672535552
This is a new side to Pettis. I like it.