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Six decades of inflation and money demand

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  • Alexi Thompson

    (Indiana University of Pennsylvania)

  • Henry Thompson

    (Auburn University)

Abstract

The present estimates of dollar demand treat inflation as a separate variable in a money market model with annual data covering nearly six decades from 1960 to 2017. The difference stationary series lead to robust error correction estimates in double log differences. Structural breaks for money supply targeting in 1980 and bank bailout policy in 2009 improve the estimates. Inflation has an elastic effect on store of value and transactions demands. Rising income incompletely offsets declining dollar demand. Transactions demand appears to be especially sensitive to a decrease in inflation.

Suggested Citation

  • Alexi Thompson & Henry Thompson, 2021. "Six decades of inflation and money demand," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(2), pages 240-251, April.
    • Handle: RePEc:spr:jecfin:v:45:y:2021:i:2:d:10.1007_s12197-020-09510-y
    DOI: 10.1007/s12197-020-09510-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation; Money demand;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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