Short-Run Money Demand
26 Pages Posted: 27 Sep 2002 Last revised: 26 Sep 2022
Date Written: September 2002
Abstract
The paper estimates a long-run demand function for M1, using U.S. data for 1959-1993. This paper interprets deviations from this long-run relation with Goldfeld's partial adjustment model. A key innovation is the choice of the interest rate in the money demand function. Most previous work uses a short-term market rate, but this paper uses the average return on near monies' close substitutes for M1 such as savings accounts and money market mutual funds. This approach yields a predicted path of M1 velocity that closely matches the data. The volatility of velocity after 1980 is explained by volatility in the returns on near monies.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability
By Jess Benhabib, Stephanie Schmitt-grohé, ...
-
Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability
By Jess Benhabib, Stephanie Schmitt-grohé, ...
-
Backward-Looking Interest Rate Rules, Interest Rate Smoothing and Macroeconomic Instability
By Jess Benhabib, Stephanie Schmitt-grohé, ...
-
Firm-Specific Investment, Sticky Prices, and the Taylor Principle
By Tommy Sveen and Lutz Weinke
-
Equilibrium Indeterminacy under Forward-Looking Interest Rate Rules
-
House Prices and Monetary Policy
By Paulo B. Brito, Giancarlo Marini, ...