"Inflationary Expectations and the Demand for Money: The Greek Experience, A Comment and Some Different Results" – A Replay

Brissimis, Sophocles N.; Leventakis, John A. Article "Inflationary Expectations and the Demand for Money: The Greek Experience, A Comment and Some Different Results" – A Replay Kredit und Kapital Provided in Cooperation with: Duncker & Humblot, Berlin Suggested Citation: Brissimis, Sophocles N.; Leventakis, John A. (1983) : "Inflationary Expectations and the Demand for Money: The Greek Experience, A Comment and Some Different Results" – A Replay, Kredit und Kapital, ISSN 0023-4591, Duncker & Humblot, Berlin, Vol. 16, Iss. 2, pp. 265-266, https://doi.org/10.3790/ccm.16.2.265 This Version is available at: https://hdl.handle.net/10419/292963 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ "Inflationary Expectations and the Demand for Money: The Greek Experience A Comment and Some Different Results" A Reply By Sophocles N. Brissimis and John A. Leventakis, Athens Himarios1 s comments on our article refer first to our implementation of the rational expectations approach and second to our empirical result that the market for Ml is segmented from the markets for financial and real assets. In this note we purport to clarify a few points in our article and show that Himarios's criticisms are not well founded. To avoid misunderstanding of what our assumptions about rational expectations are, we should note that the expected rate of inflation to be used as an opportunity cost variable in the demand-for-money function is defined as the rate of inflation expected to prevail between time t and time t + 1 and should perhaps be written with two subscripts, i.e. tpt + i• Thus the expected rate of inflation and the actual rate of inflation in our paper do not refer to the same time period. In this way the approximation used bypasses the estimation problem mentioned by Himarios which is associated with the rational expectations approach. On the other hand, Himarios erroneously uses the "weakly" rational predictor P*t = E (Pt/Pt_i, Pt-2 •••) as a second proxy for the expected rate of inflation. The correct proxy would be tPt*+1 = E(Pt + l/PuPt-U ...). As regards our conclusions that the market for M1 is segmented from the markets for either financial or real assets, these are based on the results for the subperiod 1964 - 1978 and not for the whole period 1955 - 1978. It seems that our stability tests showing that the demand function is unstable over the period 19551978 (p. 564) went unnoticed by Himarios. The introduction of the dummy variable for 1967 does not remove the problem of instability as indicated by the application of the Chow test to his equation (3). Also, the equations of Table II if estimated for the period 1964 -1978 yield the same conclusion, namely that the interest rate is not OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.16.2.265 | Generated on 2023-01-16 12:49:05 266 Sophocles N. Brissimis and John A. Leventakis significant. As an example, the first equation of Table II estimated for the period 1964 - 1978 is as follows: In (M/P)t = - 0.70 + 0.52 In Yt + 0 06 DUM - 0.004 In RSt + 0.461 In (M/P)t_! (1.14) (2.75) ^2.05) (0.07) (2.25) (t values in parentheses) R2 = 0.99 h = - 1.60 Similarly, the expected rate of inflation proxied by the current rate of inflation is found to be insignificant in the real partial adjustment model over the period 1964 - 1978, i.e. In (M/P)t = - 0.91 + 0.50 InYt + 0.06 DUM - 0.16 In (Pt/Pt_i) + 0.50 In (M/P)t_! (1.56) (2.95) (2.11) (0.94) (2.96) (t values in parentheses) R2 = 0.99 h = - 1.12 Therefore our conclusions that in the period 1964 - 1978 the demand for Ml is not sensitive to changes in opportunity cost do not seem to be affected either by the introduction of a dummy variable for 1967 or by the use of the real partial adjustment model. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.16.2.265 | Generated on 2023-01-16 12:49:05