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eebo-0027

Money supply

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A price dispersion equation is tested with data from the German hyper-inflation. The equation is derived from a version of Lucas' (1973) and Barro's (1976) partial information-localized market models. In this extension, different excess demand elasticities across commodities imply a testable dispersion equation, in which the explanatory variable is the magnitude of the unperceived money growth. The testing of this hypothesis requires two preliminary steps. First, a price dispersion series is computed using an interesting set of data. It consists of monthly average wholesale prices of 68 commodities ranging from foods to metals, for the period of January, 1921 to July, 1923. The next step is the delicate one of measuring unperceived money growth. This estimation implies the postulation of an available information set and also a function relating the variables in this set to money creation. The function used was based on considerations related to government demand for revenue. The model receives support from the empirical analysis although it is evident that unincluded variables have important effects on price dispersion.

Money supply. --- Money supply --- Mathematical models.

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This paper reports an empirical test of a price dispersion equation, using data on the U.S. after World War II. The equation, derived elsewhere from aversion of the partial information-localized market models, relates price dispersion to the magnitude of changes in the aggregate disturbances. In order to test the model a series on price dispersion is computed using annual wholesale price indexes for the period 1948-76. The data on money shocks are the unanticipated money growth series estimated by Barro. The tests also include a measure of aggregate-real disturbances. From the theoretical point of view the results are negative. They reject the hypothesis that unexpected money shocks, as measured by Barro, affect price dispersion in the way predicted by the model. In a previous paper, a similar model was tested with data from the German hyperinflation and found supported to a considerable extent. The difference in the results may be related to the extreme magnitude of the monetary disturbances during that period, and to the apparently important effect of unincluded relative disturbances in the United States.

Money supply. --- Money supply --- Mathematical models.

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Money supply --- Coinage

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Monetary policy --- Money supply