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Activity Number:
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578
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Type:
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Invited
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Date/Time:
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Thursday, August 6, 2009 : 10:30 AM to 12:20 PM
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Sponsor:
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Business and Economic Statistics Section
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| Abstract - #303098 |
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Title:
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The End of the Great Moderation? How Better Monetary Statistics Could Have Signaled the Systemic Risk Precipitating the Financial Crisis
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Author(s):
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William A. Barnett*+ and Marcelle Chauvet
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Companies:
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The University of Kansas and University of California, Riverside
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Address:
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Department of Economics, Lawrence, KS, 66045-7585,
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Keywords:
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Measurement error ; monetary aggregation ; Divisia index ; monetary policy ; multilateral aggregation ; monetary economics
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Abstract:
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This paper comprises a survey of research on monetary aggregate data in the last three decades. Since monetary assets began yielding interest, the simple sum monetary aggregates have had no foundations in economic theory and have sequentially produced one source of misunderstanding after another. The bad data produced by simple sum aggregation have contaminated research in monetary economics, have resulted in needless "paradoxes," and have produced decades of misunderstandings in monetary economics research and policy. While better data, based correctly on index number theory and aggregation theory, now exist, the official central bank data most commonly used have not improved in most parts of the world. Data driven misperceptions about the "great moderation" of the business cycle contributed to the excess risk-taking that precipitated the recent financial crisis.
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