The Demand for Money in the U.S. During the Great Depression: Estimates and Comparison with the Post War Experience

41 Pages Posted: 7 Jul 2004 Last revised: 17 Oct 2022

See all articles by Dennis L. Hoffman

Dennis L. Hoffman

University of Texas at Arlington; National Bureau of Economic Research (NBER)

Robert Rasche

Michigan State University; National Bureau of Economic Research (NBER)

Date Written: December 1989

Abstract

This study investigates the equilibrium demand for narrowly defined monetary aggregate during the Great Depression. We find evidence in support of a stable demand for real balance, but no evidence in support of stable demand functions for real currency and real monetary base. This is consistent with the Friedman-Schwartz interpretation of this period.

We do not reject the hypothesis that the equilibrium demand for real Ml is stable between the pre and post WWII sample periods. We find that the "shift in the drift" of Ml velocity after 1945 and at the end of 1981 as well as the "shift in the drift" of currency and base velocities in 1981 is the image of corresponding "shift in the drift" of short-term interest rates. We interpret this as consistent with the hypothesis that the dramatic change in velocity patterns after WWII and in 1981 result from changes in inflationary expectations.

Suggested Citation

Hoffman, Dennis L. and Rasche, Robert, The Demand for Money in the U.S. During the Great Depression: Estimates and Comparison with the Post War Experience (December 1989). NBER Working Paper No. w3217, Available at SSRN: https://ssrn.com/abstract=226707

Dennis L. Hoffman (Contact Author)

University of Texas at Arlington ( email )

415 S West St Apt no 205
Arlington, TX 76013
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Robert Rasche

Michigan State University ( email )

East Lansing, MI 48824
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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