John Duca - Academia.edu (original) (raw)

Papers by John Duca

Social Science Research Network, Oct 22, 2000

Social Science Research Network, Jun 1, 2010

The consumption behaviour of UK, US and Japanese households is examined and compared using a mode... more The consumption behaviour of UK, US and Japanese households is examined and compared using a modern Ando-Modigliani style consumption function. The models incorporate income growth expectations, income uncertainty, housing collateral and other credit effects. These models therefore capture important parts of the financial accelerator. The evidence is that credit availability for UK and US but not Japanese households has undergone large shifts since 1980. The average consumption-to-income ratio shifted up in the UK and US as mortgage downpayment constraints eased and as the collateral role of housing wealth was enhanced by financial innovations, such as home equity loans. The estimated housing collateral effect is roughly similar in the US and UK, while land prices in Japan still have a negative effect on consumer spending. Together with evidence for negative real interest rate effects in the UK and US and positive ones in Japan, this suggests important differences in the transmission of monetary and credit shocks between Japan and the US, UK and other credit-liberalized economies. Keywords consumption, credit conditions, housing collateral and housing wealth JEL Codes E21, E32, E44, E51 * We thank Jessica Renier for research assistance. An earlier version was presented at the American Economic Association meetings and at Statistics Norway, in 2009, and we are grateful for comments received. The views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Dallas, or the Board of Governors of the Federal Reserve System. Any remaining errors are our own. Research support is acknowledged from the ESRC under "Improving Methods for Macro-econometric Modelling", RES-000-23-0244.

Federal Reserve Bank of Dallas, Working Papers

The views expressed are those of the authors and are not necessarily those of the Federal Reserve... more The views expressed are those of the authors and are not necessarily those of the Federal Reserve Bank of Dallas or the Federal Reserve System. We thank David VanHoose for comments and suggestions, and Jonah Danziger and Claire Jeffress for excellent research assistance. Any errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Journal of the Japanese and International Economies

For over two centuries, the municipal (muni) bond market has been a source of systemic risk, whic... more For over two centuries, the municipal (muni) bond market has been a source of systemic risk, which returned early in the Covid-19 downturn when borrowing from securities markets became costly for many private and public entities, and some found it difficult to borrow at all. Indeed, just before the Fed announced its unprecedented intervention into the muni market, spreads of muni over Treasury yields rose in line with the unemployment rate and appeared headed to levels not seen since the Great Depression, when real municipal gross investment plunged 35 percent below 1929 levels. To prevent such a calamity, the Fed created the Municipal Liquidity Facility (MLF) to purchase newly issued, (near) investment-grade state and local government bonds at ratings-based interest rate spreads over the safe OIS benchmark yield. In general, these spreads were initially about 100 basis points above average spreads under more normal market conditions and were later lowered by 50 basis points in August 2020. Despite a modest take-up, our study documents the MLF prevented muni spreads from rising much above those margins (plus a modest 10 basis point fee) and limited the extent to which interest rate spreads could have amplified the impact of the Covid pandemic. To establish the MLF the Fed needed Treasury indemnification against default losses. There were concerns about whether the creation of the MLF could induce moral hazard among borrowers and could undermine the efficiency of the bond market if the facility had lasted too long. Partly for this reason and because the muni market had settled down by yearend 2020, the Treasury terminated the MLF at that time. Future assessments of these downside aspects will help answer the question whether the program's benefits addressed here exceeded its costs.

Federal Reserve Bank of Dallas, Working Papers

The U.S. stock ownership rate doubled between 1983 and 2001 but remains below predictions of some... more The U.S. stock ownership rate doubled between 1983 and 2001 but remains below predictions of some equity participation models. Consistent with calibration studies by Heaton and Lucas (2000) and Gomes and Michaelides (2005), mutual fund costs and indicators of background labor risk are significantly related to stock ownership over 1964-2019. Coefficient estimates and continuous data on driving variables can be used to create a continuous proxy for stock ownership, which could help researchers gauge the effects of shocks that are transmitted via equity participation. Typically omitted asset transfer costs can help analyze other aspects of household portfolio behavior.

Although major changes in mortgage finance have occurred since the subprime bust, several issues ... more Although major changes in mortgage finance have occurred since the subprime bust, several issues remain unresolved, centering on the roles of Fannie Mae, Freddie Mac, and the FHA. We analyze how some reforms might affect house prices in a framework rich enough to simulate the impact of several reforms which change mortgage interest rates and/or loan-to-value (LTV) ratios of first time home buyers, the key drivers of house prices in recent decades. Simulations suggest that ending the GSE interest rate subsidy would have small effects, while changes in capital requirements or maximum FHA loan size limits would have larger effects.

Journal of Banking & Finance, 2022

In the financial crisis and recession induced by the Covid-19 pandemic, many investment-grade fir... more In the financial crisis and recession induced by the Covid-19 pandemic, many investment-grade firms became unable to borrow from securities markets. In response, the Fed not only reopened its commercial paper funding facility but also announced it would purchase newly issued and seasoned corporate bonds rated as investment grade before the Covid pandemic. We assess the effectiveness of this program using long sample periods, spanning the Great Depression through the Great and Covid Recessions. Findings indicate that the announcement of corporate bond backstop facilities helped stop risk premia from rising further than they had by late-March 2020. In doing so, these backstop facilities limited the role of external finance premia in amplifying the macroeconomic impact of the Covid pandemic. Nevertheless, the corporate bond programs blend the roles of the Federal Reserve in conducting monetary policy via its balance sheet, acting as a lender of last resort, and pursuing credit policies.

Macroeconomics: Consumption, 2016

A combination of much less household debt, revived access to consumer credit and recovering asset... more A combination of much less household debt, revived access to consumer credit and recovering asset prices have holstered U.S. consumer spending. This trend will likely continue despite an estimated 50 percent reduction since the mid-2000s of the housing wealth effect—an important amplifier during the boom years.

The current balance between the number of owner-occupied homes and rental units demanded, along w... more The current balance between the number of owner-occupied homes and rental units demanded, along with existing housing supply, favors a continued recovery in house prices and construction even after temporary delays attributable to severe winter weather in 2013–14. Still, the future pace of the housing recovery will reflect important supply and demand influences—the impact of new homes on supply, market developments affecting housing prices and the alternative costs of renting.

The post-1980 downward trend in the U.S. saving rate and the recent consumption boom and bust hav... more The post-1980 downward trend in the U.S. saving rate and the recent consumption boom and bust have been attributed to changes in the supply of credit and the liquidity of housing wealth, factors which are not directly observed. Our indexes of unsecured consumer credit availability and the liquidity of housing wealth address this gap. The liquidity of housing wealth is estimated as a common unobservable state in a jointly estimated, non-linear state space model of consumption and mortgage refinancing. The resulting credit augmented, life cycle model of consumption shows that financial innovations and frictions play critical roles in the booms and busts in U.S. consumption.

After swinging from exuberant boom to epic bust over a decade, many local U.S. housing markets be... more After swinging from exuberant boom to epic bust over a decade, many local U.S. housing markets began a long-awaited housing recovery in 2012. The pace of house price change varied across metropolitan areas, mainly reflecting how local builders reacted to increased demand.

The correlation between house prices and oil booms raises concerns because oil prices have fallen... more The correlation between house prices and oil booms raises concerns because oil prices have fallen nearly as much from their 2014 peak (about 66 percent) as they did during the mid-1980s oil collapse (70 percent). That 1980s collapse preceded a long housing bust.

U.S. housing markets experienced a notable boom and a painful bust during the past decade. Most r... more U.S. housing markets experienced a notable boom and a painful bust during the past decade. Most recently, housing began its long-awaited recovery?the subject of the Dallas Fed?s 2013 Annual Report. In three essays, widely recognized housing expert and associate director of research John Duca shares insights on the national and regional markets and the outlook for housing.

Journal of European Real Estate Research, 2021

Purpose The study aims to analyze the effects of the Covid-19 pandemic on house prices. Design/me... more Purpose The study aims to analyze the effects of the Covid-19 pandemic on house prices. Design/methodology/approach The authors start by discussing the possibility that house price indexes may not fully incorporate the effects of the pandemic as of yet. Against the background of the pandemic, the authors then analyze economic and behavioral effects affecting house prices. The authors also discuss how the linkages between tourism and house prices have been affected. The authors further present evidence of an emerging shift in preferences from urban locations to more peripheral ones. Findings The authors report variance in the evolution of house prices across countries at the onset of the pandemic, with locations depending heavily on tourism showing slower price appreciation while appreciation has firmed in other places. The authors argue that the resilience of house prices is not only because of the low-interest rate environment and government efforts to support firms and households,...

Journal of Government and Economics, 2021

Abstract The economics literature lacks articles that provide a broad roadmap—let alone a logical... more Abstract The economics literature lacks articles that provide a broad roadmap—let alone a logical explanation—of the new set of Federal Reserve policy tools that were created to counter the COVID-19 recession. This study provides an overview of the motivation for these new credit-easing programs—namely to damp feedback mechanisms and channels that would otherwise amplify the downturn and impede a subsequent recovery. The study then briefly assesses the impact of the new policy tools and addresses the risks they might pose. In addition, the new credit easing tools are put into historical context through a discussion of their development as part of the Fed's evolving and expanding role in countering financial crises.

Journal of Economic Literature, 2021

The role of real estate during the global financial and economic crisis has prompted efforts to b... more The role of real estate during the global financial and economic crisis has prompted efforts to better incorporate housing and financial channels into macro models, improve housing models, develop macroprudential tools, and reform the financial system. This article provides an overview of major, recent contributions to the literature in relation to earlier research on what drives housing prices and how they affect economic activity. Particularly emphasized are studies, both theoretical and more strongly evidence-based, that connect housing markets with credit markets, house price expectations, financial stability, and the wider economy. The literature reveals much diversity in the international and regional behavior of house prices and the need to improve data tracking key housing supply and demand influences. Also reviewed are studies examining how monetary, macroprudential, and other policies affect house prices and access to housing. This survey is designed to help readers naviga...

Journal of Financial Stability, 2019

Conference on financial services indices, liquidity and economic activity ଝ This special issue of... more Conference on financial services indices, liquidity and economic activity ଝ This special issue of the Journal of Financial Stability collects selected papers presented at the conference, "Financial Services Indices, Liquidity and Economic Activity," held on May 23 and 24, 2017 at the Bank of England. Thanks to support from the Bank of England, the Federal Reserve Bank of Dallas, Fordham University, the University of Birmingham, the Center for Financial Stability, and some individuals, many of the contributions from that conference appear in this highly regarded journal. The studies focus on several issues including the macroeconomic implications of liquidity, the liquidity creation process, and the impacts of liquidity on financial markets and economic activity. While most of the papers are empirical, some provide new theoretical insights as well. A number of the papers employ measures of liquidity constructed as statistical index numbers, following the seminal work of Barnett (1980). Clearly, different assets furnish different amounts of liquidity, and at different prices: currency and checkable deposits are low-cost, widely used means of payment, while bank time deposits, Treasury securities, and commercial paper, although little used for transactions, provide relatively low-cost standby liquidity. 1 Barnett's insight was to recognize that measuring liquidity (or money) by summing the dollar amounts of assets that were not perfect (or even close) substitutes makes little economic sense-and violates well-known aggregation theorems. He proposed, instead, a two-part analysis: first, use well-known tests from economic demand theory to determine which, if any, economic aggregates might exist in the data, and, second, approximate the putative (unknown) aggregator function(s) with statistical index number(s). 2 The aggregator functions (that define economic aggregates) arise from the first-order conditions of demand (or production) theory and, in general, are defined over quantities and a set

Journal of Financial Stability, 2019

We construct Monetary Services (Divisia) Indexes at various levels of aggregation (the broadest o... more We construct Monetary Services (Divisia) Indexes at various levels of aggregation (the broadest of which is M4) from the late 1940s through 1967 employing methods designed to permit these historical series to be spliced to corresponding series currently published by the Center for Financial Stability (CFS), which begin in 1967. The annualized growth rate of our MSI M2 during 1947 to 1967 generally lies between the growth rates of conventional M1 and M2, while the growth rate of MSI M3 is below that of conventional M3 over the same period. Using spliced series, we find that the velocities of the MSI exhibit gradual upward trends from the late 1940s through 1978, with distinct upward shifts in the late 1970's and early 1980's, while the velocity of conventional M3 trends downward between 1953 and 1982. Using a Fourier demand model, we find elastic substitution between M1 and the non-M1 components of MSI M3 up to 1967, but inelastic substitution between bank and thrift deposits.

Social Science Research Network, Oct 22, 2000

Social Science Research Network, Jun 1, 2010

The consumption behaviour of UK, US and Japanese households is examined and compared using a mode... more The consumption behaviour of UK, US and Japanese households is examined and compared using a modern Ando-Modigliani style consumption function. The models incorporate income growth expectations, income uncertainty, housing collateral and other credit effects. These models therefore capture important parts of the financial accelerator. The evidence is that credit availability for UK and US but not Japanese households has undergone large shifts since 1980. The average consumption-to-income ratio shifted up in the UK and US as mortgage downpayment constraints eased and as the collateral role of housing wealth was enhanced by financial innovations, such as home equity loans. The estimated housing collateral effect is roughly similar in the US and UK, while land prices in Japan still have a negative effect on consumer spending. Together with evidence for negative real interest rate effects in the UK and US and positive ones in Japan, this suggests important differences in the transmission of monetary and credit shocks between Japan and the US, UK and other credit-liberalized economies. Keywords consumption, credit conditions, housing collateral and housing wealth JEL Codes E21, E32, E44, E51 * We thank Jessica Renier for research assistance. An earlier version was presented at the American Economic Association meetings and at Statistics Norway, in 2009, and we are grateful for comments received. The views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Dallas, or the Board of Governors of the Federal Reserve System. Any remaining errors are our own. Research support is acknowledged from the ESRC under "Improving Methods for Macro-econometric Modelling", RES-000-23-0244.

Federal Reserve Bank of Dallas, Working Papers

The views expressed are those of the authors and are not necessarily those of the Federal Reserve... more The views expressed are those of the authors and are not necessarily those of the Federal Reserve Bank of Dallas or the Federal Reserve System. We thank David VanHoose for comments and suggestions, and Jonah Danziger and Claire Jeffress for excellent research assistance. Any errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Journal of the Japanese and International Economies

For over two centuries, the municipal (muni) bond market has been a source of systemic risk, whic... more For over two centuries, the municipal (muni) bond market has been a source of systemic risk, which returned early in the Covid-19 downturn when borrowing from securities markets became costly for many private and public entities, and some found it difficult to borrow at all. Indeed, just before the Fed announced its unprecedented intervention into the muni market, spreads of muni over Treasury yields rose in line with the unemployment rate and appeared headed to levels not seen since the Great Depression, when real municipal gross investment plunged 35 percent below 1929 levels. To prevent such a calamity, the Fed created the Municipal Liquidity Facility (MLF) to purchase newly issued, (near) investment-grade state and local government bonds at ratings-based interest rate spreads over the safe OIS benchmark yield. In general, these spreads were initially about 100 basis points above average spreads under more normal market conditions and were later lowered by 50 basis points in August 2020. Despite a modest take-up, our study documents the MLF prevented muni spreads from rising much above those margins (plus a modest 10 basis point fee) and limited the extent to which interest rate spreads could have amplified the impact of the Covid pandemic. To establish the MLF the Fed needed Treasury indemnification against default losses. There were concerns about whether the creation of the MLF could induce moral hazard among borrowers and could undermine the efficiency of the bond market if the facility had lasted too long. Partly for this reason and because the muni market had settled down by yearend 2020, the Treasury terminated the MLF at that time. Future assessments of these downside aspects will help answer the question whether the program's benefits addressed here exceeded its costs.

Federal Reserve Bank of Dallas, Working Papers

The U.S. stock ownership rate doubled between 1983 and 2001 but remains below predictions of some... more The U.S. stock ownership rate doubled between 1983 and 2001 but remains below predictions of some equity participation models. Consistent with calibration studies by Heaton and Lucas (2000) and Gomes and Michaelides (2005), mutual fund costs and indicators of background labor risk are significantly related to stock ownership over 1964-2019. Coefficient estimates and continuous data on driving variables can be used to create a continuous proxy for stock ownership, which could help researchers gauge the effects of shocks that are transmitted via equity participation. Typically omitted asset transfer costs can help analyze other aspects of household portfolio behavior.

Although major changes in mortgage finance have occurred since the subprime bust, several issues ... more Although major changes in mortgage finance have occurred since the subprime bust, several issues remain unresolved, centering on the roles of Fannie Mae, Freddie Mac, and the FHA. We analyze how some reforms might affect house prices in a framework rich enough to simulate the impact of several reforms which change mortgage interest rates and/or loan-to-value (LTV) ratios of first time home buyers, the key drivers of house prices in recent decades. Simulations suggest that ending the GSE interest rate subsidy would have small effects, while changes in capital requirements or maximum FHA loan size limits would have larger effects.

Journal of Banking & Finance, 2022

In the financial crisis and recession induced by the Covid-19 pandemic, many investment-grade fir... more In the financial crisis and recession induced by the Covid-19 pandemic, many investment-grade firms became unable to borrow from securities markets. In response, the Fed not only reopened its commercial paper funding facility but also announced it would purchase newly issued and seasoned corporate bonds rated as investment grade before the Covid pandemic. We assess the effectiveness of this program using long sample periods, spanning the Great Depression through the Great and Covid Recessions. Findings indicate that the announcement of corporate bond backstop facilities helped stop risk premia from rising further than they had by late-March 2020. In doing so, these backstop facilities limited the role of external finance premia in amplifying the macroeconomic impact of the Covid pandemic. Nevertheless, the corporate bond programs blend the roles of the Federal Reserve in conducting monetary policy via its balance sheet, acting as a lender of last resort, and pursuing credit policies.

Macroeconomics: Consumption, 2016

A combination of much less household debt, revived access to consumer credit and recovering asset... more A combination of much less household debt, revived access to consumer credit and recovering asset prices have holstered U.S. consumer spending. This trend will likely continue despite an estimated 50 percent reduction since the mid-2000s of the housing wealth effect—an important amplifier during the boom years.

The current balance between the number of owner-occupied homes and rental units demanded, along w... more The current balance between the number of owner-occupied homes and rental units demanded, along with existing housing supply, favors a continued recovery in house prices and construction even after temporary delays attributable to severe winter weather in 2013–14. Still, the future pace of the housing recovery will reflect important supply and demand influences—the impact of new homes on supply, market developments affecting housing prices and the alternative costs of renting.

The post-1980 downward trend in the U.S. saving rate and the recent consumption boom and bust hav... more The post-1980 downward trend in the U.S. saving rate and the recent consumption boom and bust have been attributed to changes in the supply of credit and the liquidity of housing wealth, factors which are not directly observed. Our indexes of unsecured consumer credit availability and the liquidity of housing wealth address this gap. The liquidity of housing wealth is estimated as a common unobservable state in a jointly estimated, non-linear state space model of consumption and mortgage refinancing. The resulting credit augmented, life cycle model of consumption shows that financial innovations and frictions play critical roles in the booms and busts in U.S. consumption.

After swinging from exuberant boom to epic bust over a decade, many local U.S. housing markets be... more After swinging from exuberant boom to epic bust over a decade, many local U.S. housing markets began a long-awaited housing recovery in 2012. The pace of house price change varied across metropolitan areas, mainly reflecting how local builders reacted to increased demand.

The correlation between house prices and oil booms raises concerns because oil prices have fallen... more The correlation between house prices and oil booms raises concerns because oil prices have fallen nearly as much from their 2014 peak (about 66 percent) as they did during the mid-1980s oil collapse (70 percent). That 1980s collapse preceded a long housing bust.

U.S. housing markets experienced a notable boom and a painful bust during the past decade. Most r... more U.S. housing markets experienced a notable boom and a painful bust during the past decade. Most recently, housing began its long-awaited recovery?the subject of the Dallas Fed?s 2013 Annual Report. In three essays, widely recognized housing expert and associate director of research John Duca shares insights on the national and regional markets and the outlook for housing.

Journal of European Real Estate Research, 2021

Purpose The study aims to analyze the effects of the Covid-19 pandemic on house prices. Design/me... more Purpose The study aims to analyze the effects of the Covid-19 pandemic on house prices. Design/methodology/approach The authors start by discussing the possibility that house price indexes may not fully incorporate the effects of the pandemic as of yet. Against the background of the pandemic, the authors then analyze economic and behavioral effects affecting house prices. The authors also discuss how the linkages between tourism and house prices have been affected. The authors further present evidence of an emerging shift in preferences from urban locations to more peripheral ones. Findings The authors report variance in the evolution of house prices across countries at the onset of the pandemic, with locations depending heavily on tourism showing slower price appreciation while appreciation has firmed in other places. The authors argue that the resilience of house prices is not only because of the low-interest rate environment and government efforts to support firms and households,...

Journal of Government and Economics, 2021

Abstract The economics literature lacks articles that provide a broad roadmap—let alone a logical... more Abstract The economics literature lacks articles that provide a broad roadmap—let alone a logical explanation—of the new set of Federal Reserve policy tools that were created to counter the COVID-19 recession. This study provides an overview of the motivation for these new credit-easing programs—namely to damp feedback mechanisms and channels that would otherwise amplify the downturn and impede a subsequent recovery. The study then briefly assesses the impact of the new policy tools and addresses the risks they might pose. In addition, the new credit easing tools are put into historical context through a discussion of their development as part of the Fed's evolving and expanding role in countering financial crises.

Journal of Economic Literature, 2021

The role of real estate during the global financial and economic crisis has prompted efforts to b... more The role of real estate during the global financial and economic crisis has prompted efforts to better incorporate housing and financial channels into macro models, improve housing models, develop macroprudential tools, and reform the financial system. This article provides an overview of major, recent contributions to the literature in relation to earlier research on what drives housing prices and how they affect economic activity. Particularly emphasized are studies, both theoretical and more strongly evidence-based, that connect housing markets with credit markets, house price expectations, financial stability, and the wider economy. The literature reveals much diversity in the international and regional behavior of house prices and the need to improve data tracking key housing supply and demand influences. Also reviewed are studies examining how monetary, macroprudential, and other policies affect house prices and access to housing. This survey is designed to help readers naviga...

Journal of Financial Stability, 2019

Conference on financial services indices, liquidity and economic activity ଝ This special issue of... more Conference on financial services indices, liquidity and economic activity ଝ This special issue of the Journal of Financial Stability collects selected papers presented at the conference, "Financial Services Indices, Liquidity and Economic Activity," held on May 23 and 24, 2017 at the Bank of England. Thanks to support from the Bank of England, the Federal Reserve Bank of Dallas, Fordham University, the University of Birmingham, the Center for Financial Stability, and some individuals, many of the contributions from that conference appear in this highly regarded journal. The studies focus on several issues including the macroeconomic implications of liquidity, the liquidity creation process, and the impacts of liquidity on financial markets and economic activity. While most of the papers are empirical, some provide new theoretical insights as well. A number of the papers employ measures of liquidity constructed as statistical index numbers, following the seminal work of Barnett (1980). Clearly, different assets furnish different amounts of liquidity, and at different prices: currency and checkable deposits are low-cost, widely used means of payment, while bank time deposits, Treasury securities, and commercial paper, although little used for transactions, provide relatively low-cost standby liquidity. 1 Barnett's insight was to recognize that measuring liquidity (or money) by summing the dollar amounts of assets that were not perfect (or even close) substitutes makes little economic sense-and violates well-known aggregation theorems. He proposed, instead, a two-part analysis: first, use well-known tests from economic demand theory to determine which, if any, economic aggregates might exist in the data, and, second, approximate the putative (unknown) aggregator function(s) with statistical index number(s). 2 The aggregator functions (that define economic aggregates) arise from the first-order conditions of demand (or production) theory and, in general, are defined over quantities and a set

Journal of Financial Stability, 2019

We construct Monetary Services (Divisia) Indexes at various levels of aggregation (the broadest o... more We construct Monetary Services (Divisia) Indexes at various levels of aggregation (the broadest of which is M4) from the late 1940s through 1967 employing methods designed to permit these historical series to be spliced to corresponding series currently published by the Center for Financial Stability (CFS), which begin in 1967. The annualized growth rate of our MSI M2 during 1947 to 1967 generally lies between the growth rates of conventional M1 and M2, while the growth rate of MSI M3 is below that of conventional M3 over the same period. Using spliced series, we find that the velocities of the MSI exhibit gradual upward trends from the late 1940s through 1978, with distinct upward shifts in the late 1970's and early 1980's, while the velocity of conventional M3 trends downward between 1953 and 1982. Using a Fourier demand model, we find elastic substitution between M1 and the non-M1 components of MSI M3 up to 1967, but inelastic substitution between bank and thrift deposits.