Getting It Wrong by Barnett, William A. -- Read -- Imperial Library of Trantor

Index

Cover Copyright Title Page Dedication Contents Foreword: Macroeconomics as a Science Preface Acknowledgments I The Facts without the Math

1 Introduction

1.1 Whose Greed?

1.1.1 Ponzi Games, Transversality, and the Fraud Explosion 1.1.2 Conditional Expectations 1.1.3 Regulation in History and in Theory

1.2 The Great Moderation 1.3 The Maestro 1.4 Paradoxes 1.5 Conclusion

2 Monetary Aggregation Theory

2.1 Adding Apples and Oranges 2.2 Dual Price Aggregation 2.3 Financial Aggregation 2.4 The Commerce Department and the Department of Labor 2.5 The Major Academic Players

2.5.1 Irving Fisher 2.5.2 François Divisia 2.5.3 Henri Theil 2.5.4 Dale Jorgenson 2.5.5 Milton Friedman 2.5.6 W. Erwin Diewert 2.5.7 James Poterba and Julio Rotemberg

2.6 Banks throughout the World

2.6.1 Federal Reserve Board 2.6.2 The Bank of Japan 2.6.3 The St. Louis Federal Reserve Bank 2.6.4 The Bank of England 2.6.5 The European Central Bank 2.6.6 The International Monetary Fund

2.7 Mechanism Design: Why Is the Fed Getting It Wrong?

2.7.1 The Theory 2.7.2 NASA’s Space Program 2.7.3 The Locked Office 2.7.4 The Relationship between the Board’s Staff, the Governors, the FOMC, and the Regional Banks 2.7.5 The Right and the Wrong Kinds of Reform 2.7.6 The Office of Financial Research 2.7.7 A Quiz: Answer True or False

2.8 Conclusion

3 The History

3.1 The 1960s and 1970s 3.2 The Monetarist Experiment: October 1979 to September 1982 3.3 The End of the Monetarist Experiment: 1983 to 1984 3.4 The Rise of Risk Adjustment Concerns: 1984 to 1993 3.5 The Y2K Computer Bug: 1999 to 2000 3.6 Conclusion

4 Current Policy Problems

4.1 European ECB Data 4.2 The Most Recent Data: Would You Believe This? 4.3 The Current Crisis

4.3.1 Prior to April 14, 2006 4.3.2 Subsequent to April 14, 2006 4.3.3 The Revised MSI Data

4.4 Conclusion

5 Summary and Conclusion

II Mathematical Appendixes

A Monetary Aggregation Theory under Perfect Certainty

A.1 Introduction A.2 Consumer Demand for Monetary Assets

A.2.1 Finite Planning Horizon A.2.2 Infinite Planning Horizon A.2.3 Income Taxes

A.3 Supply of Monetary Assets by Financial Intermediaries

A.3.1 Properties of the Model A.3.2 Separability of Technology

A.4 Demand for Monetary Assets by Manufacturing Firms

A.4.1 Separability of Technology

A.5 Aggregation Theory under Homogeneity

A.5.1 The Consumer A.5.2 The Manufacturing Firm A.5.3 The Financial Intermediary A.5.4 Summary of Aggregator Functions A.5.5 Subaggregation

A.6 Index-Number Theory under Homogeneity

A.6.1 The Consumer and the Manufacturing Firm A.6.2 The Financial Intermediary

A.7 Aggregation Theory without Homogeneity

A.7.1 The Consumer and the Manufacturing Firm A.7.2 The Financial Intermediary

A.8 Index-Number Theory under Nonhomogeneity

A.8.1 The Consumer and the Manufacturing Firm A.8.2 The Financial Intermediary A.8.3 Subaggregation

A.9 Aggregation over Consumers and Firms A.10 Technological Change A.11 Value Added A.12 Macroeconomic and General Equilibrium Theory

A.12.1 The Utility Production Function A.12.2 Velocity Function

A.13 Aggregation Error from Simple Sum Aggregation A.14 Conclusion

B Discounted Capital Stock of Money with Risk Neutrality

B.1 Introduction B.2 Economic Stock of Money (ESM) under Perfect Foresight B.3 Extension to Risk B.4 CE and Simple Sum as Special Cases of the ESM

B.4.1 The CE Index B.4.2 The Simple-Sum (SSI) Index

B.5 Measurement of the Economic Stock of Money

C Multilateral Aggregation within a Multicountry Economic Union

C.1 Introduction C.2 Definition of Variables C.3 Aggregation within Countries C.4 Aggregation over Countries C.5 Special Cases

C.5.1 Purchasing Power Parity C.5.2 Multilateral Representative Agent over the Economic Union C.5.3 Multilateral Representative Agent with Heterogeneous Tastes C.5.4 Multilateral Representative Agent with Homogeneous Tastes C.5.5 Unilateral Representative Agent over the Economic Union

C.6 Interest Rate Aggregation C.7 Divisia Second Moments C.8 Conclusion

D Extension to Risk Aversion

D.1 Introduction D.2 Consumer Demand for Monetary Assets

D.2.1 The Decision D.2.2 Existence of a Monetary Aggregate for the Consumer

D.3 The Perfect-Certainty Case D.4 The New Generalized Divisia Index

D.4.1 The User Cost of Money under Risk Aversion D.4.2 The Generalized Divisia Index under Risk Aversion

D.5 The CCAPM Special Case D.6 The Magnitude of the Adjustment D.7 Intertemporal Nonseparability D.8 Consumer’s Nonseparable Optimization Problem D.9 Extended Risk-Adjusted User Cost of Monetary Assets

D.9.1 The Theory D.9.2 Approximation to the Theory

D.10 Conclusion

E The Middle Ground: Understanding Divisia Aggregation

E.1 Introduction E.2 The Divisia Index E.3 The Weights E.4 Is It a Quantity or Price Index? E.5 Stocks versus Flows E.6 Conclusion

References Index

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