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Financial-Firm Production of Monetary Services: A Generalized Symmetric Barnett Variable-Profit-Function Approach

William A. Barnett and Jeong Ho Hahm
Journal of Business & Economic Statistics
Vol. 12, No. 1 (Jan., 1994), pp. 33-46
DOI: 10.2307/1391922
Stable URL: http://www.jstor.org/stable/1391922
Page Count: 14
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Financial-Firm Production of Monetary Services: A Generalized Symmetric Barnett Variable-Profit-Function Approach
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Abstract

An alternative monetary-production model of financial firms is employed to investigate supply-side monetary aggregation. Financial firms are conceived to produce monetary services as outputs through financial intermediation. A new method for testing the existence of consistent monetary-output aggregates in financial firms' production technology is developed in terms of a multiproduct firm's variable profit function, and the method does not require homotheticity of the aggregator function. We use a generalized symmetric Barnett flexible functional form. That specification satisfies global curvature conditions and retains its flexibility under the null hypothesis of weak separability. Neither of those properties is possessed by other flexible functional forms.

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