The Behavior of the M1 Demand Function in the Early 1980s

10 Pages Posted: 24 Aug 2012

See all articles by Robert L. Hetzel

Robert L. Hetzel

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 1984

Abstract

Since the last half of 1982, the rate of inflation has been below the rate that would have been predicted on the basis of the historical relationship between the rate of growth of M1 and the rate of inflation. This fact indicates that a rightward shift in the public’s M1 demand function has occurred.

Two alternative explanations of the nature of this shift are exposited in the first part of this article. Both explanations assume that the shift is associated with the deregulation of the financial system in the early 1980s. One explanation assumes that there was a onetime permanent change in the character of the public’s M1 demand function. The other assumes that shifts will occur in the public’s M1 demand function while the public adjusts to the deregulation of the financial system; however, after this adjustment is completed, the M1 demand function will reassume its pre-1980s characteristics.

Suggested Citation

Hetzel, Robert L., The Behavior of the M1 Demand Function in the Early 1980s (1984). FRB Richmond Economic Review, Vol. 70, No. 6, November/December 1984, pp. 20-29, Available at SSRN: https://ssrn.com/abstract=2120091

Robert L. Hetzel (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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