The behavior of the M1 demand function in the early 1980s
AbstractModels of the demand for M1 have underpredicted the level of real balances since late 1982, indicating a rightward shift in the public’s M1 demand function. Most observers attribute this shift to the introduction of interest-bearing checking accounts, but, at present, it is not possible to tell whether M1 demand has been permanently or only temporarily affected. In “The Behavior of the M1 Demand Function in the Early 1980s,” Robert L. Hetzel points out that deposit deregulation conceivably could have affected the demand for M1 in at least two alternative ways. First, consumers could be using the new accounts for savings purposes, thus adding a new and continuing impetus to M1 demand. Alternatively, consumers could be using the new accounts solely for transactions purposes, in which case the increased demand for M1 would take the form of a one-time shift to satisfy the higher minimum balances required on the new accounts. Since interest-earning transaction accounts are too new to reveal which theory is correct, Hetzel proposes a test that will decide the case based on the rate of inflation in 1985.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of Richmond in its journal Economic Review.
Volume (Year): (1984)
Issue (Month): Nov ()
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Coats, Warren L, Jr, 1982. "Modeling the Short-Run Demand for Money with Exogenous Supply," Economic Inquiry, Western Economic Association International, vol. 20(2), pages 222-39, April.
- Fama, Eugene F, 1982. "Inflation, Output, and Money," The Journal of Business, University of Chicago Press, vol. 55(2), pages 201-31, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (William Perkins).
If references are entirely missing, you can add them using this form.