Smooth-adjustment econometrics and inventory-theoretic money management
AbstractA growing number of empirical papers use Miller-Orr (S, s) money management as economic motivation for application of non-linear smooth-adjustment models. This paper shows such models are not implied by the Miller-Orr economy. Instead, the Miller-Orr economy implies non-standard smooth-adjustment, as derived in the neglected (and misinterpreted) work of Milbourne et al. (1983). Remarkably, this function includes a varying weight on the lagged dependent variable, capturing static (not dynamic) effects. Interpretations of these apparent dynamics are presented, some of which may be useful in non-monetary (S, s) contexts. Results imply a new agenda for applied smooth-adjustment modeling of money.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 34 (2010)
Issue (Month): 6 (June)
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Web page: http://www.elsevier.com/locate/jedc
Money Miller-Orr Smooth-adjustment Nonlinear Inventory;
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