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A monetarist money demand function

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  • Robert L. Hetzel
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    Abstract

    The notion that excessive money supply growth is the primary cause of inflation is by now so familiar as to be a virtual commonplace. Not so widely understood, however, is the monetarist reasoning underlying this view. Robert L. Hetzel contributes to this understanding by spelling out the assumptions underlying the monetarist theory of inflation in “A Monetarist Money Demand Function.” Most Economists agree that the price level is determined by the interaction of the demand for and supply of money. Monetarists go a step further, holding that since changes in the demand for money are small relative to changes in money supply, most of the changes in the general price level are caused by money stock changes. In addition to demonstrating the logic underlying this view, Hetzel suggests a functional form that can be used to test the strength of the predicted relationship between money and inflation.

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    File URL: http://www.richmondfed.org/publications/research/economic_review/1984/pdf/er700602.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Richmond in its journal Economic Review.

    Volume (Year): (1984)
    Issue (Month): Nov ()
    Pages: 15-19

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    Handle: RePEc:fip:fedrer:y:1984:i:nov:p:15-19:n:v.70no.6

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    Keywords: Inflation (Finance) ; Money;

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    1. Sargent, Thomas J, 1977. "The Demand for Money During Hyperinflations under Rational Expectations: I," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(1), pages 59-82, February.
    2. Hetzel, Robert L, 1984. "Estimating Money Demand Functions," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 16(2), pages 185-93, May.
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    Cited by:
    1. Hossain, Akhand Akhtar, 2010. "Monetary targeting for price stability in Bangladesh: How stable is its money demand function and the linkage between money supply growth and inflation?," Journal of Asian Economics, Elsevier, Elsevier, vol. 21(6), pages 564-578, December.

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