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International Price Behavior and the Demand for Money

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  • Gandolfi, Arthur E
  • Lothian, James R

Abstract

Oil prices, commodity prices and American monetary policy, the last operating through a variety of channels, have all figures prominently in explanations of the international inflation process in the last 1960s and early '70s. Our major purpose in this paper is to test these various hypotheses. We do so in the context of a reduced-form rational-expectations price equation which we estimate for the United States and seven other industrial countries using quarterly data for the period 1955 through 1976. The principal conclusion that emerges from this exercise is that movements in domestic money in these countries served as the key link in the inflation process. The factors that produced these monetary changes, however, differed among countries. Price shocks of various sorts were clearly of secondary importance. The other important set of conclusions concerns the demand for money. In place of a traditional stock adjustment model, we used, GLS with a second- order correct ion for autocorrelation. We believe this produced more plausible estimates of the parameters of the long-run demand function and of the adjustment process it self.
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Suggested Citation

  • Gandolfi, Arthur E & Lothian, James R, 1983. "International Price Behavior and the Demand for Money," Economic Inquiry, Western Economic Association International, vol. 21(3), pages 295-311, July.
    • Handle: RePEc:oup:ecinqu:v:21:y:1983:i:3:p:295-311
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    References listed on IDEAS

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    1. Bordo, Michael David & Jonung, Lars, 1981. "The Long Run Behavior of the Income Velocity of Money in Five Advanced Countries, 1870-1975: An Institutional Approach," Economic Inquiry, Western Economic Association International, vol. 19(1), pages 96-116, January.
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    3. Cagan, Phillip, 1980. "Imported Inflation, 1973-74 and the Accommodation Issue," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(1), pages 1-16, February.
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    6. Carr, Jack & Darby, Michael R., 1981. "The role of money supply shocks in the short-run demand for money," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 183-199.
    7. Gandolfi, Arthur E & Lothian, James R, 1976. "The Demand for Money from the Great Depression to the Present," American Economic Review, American Economic Association, vol. 66(2), pages 46-51, May.
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    Cited by:

    1. Lothian, James R., 2016. "Purchasing power parity and the behavior of prices and nominal exchange rates across exchange-rate regimes," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 5-21.
    2. Calza, Alessandro & Zaghini, Andrea, 2009. "Nonlinearities In The Dynamics Of The Euro Area Demand For M1," Macroeconomic Dynamics, Cambridge University Press, vol. 13(1), pages 1-19, February.
    3. Anthony Cassese & James R. Lothian, 1983. "The Timing of Monetary and Price Changes and the International Transmission of Inflation," NBER Chapters, in: The International Transmission of Inflation, pages 58-82, National Bureau of Economic Research, Inc.
    4. Walter C. Labys & Alfred Maizels, 1990. "Commodity Price Fluctuations and Macro-economic Adjustments in the Developed Countries," WIDER Working Paper Series wp-1990-088, World Institute for Development Economic Research (UNU-WIDER).
    5. Lothian, James R., 2009. "U.S. Monetary Policy and the Financial Crisis," The Journal of Economic Asymmetries, Elsevier, vol. 6(3), pages 25-40.
    6. James Boughton, 1992. "International comparisons of money demand," Open Economies Review, Springer, vol. 3(3), pages 323-343, October.

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