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Short-run Money Demand

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  • Laurence Ball

Abstract

This paper estimates a long-run demand function for M1, using U.S. data for 1959-1993. The paper interprets deviations from this long-run relation with Goldfeld=s partial adjustment model. A key innovation is the choice of the interest rate in the money demand function. Most previous work uses a short-term market rate, but this paper uses the average return on "near monies" -- close substitutes for M1 such as savings accounts and money market mutual funds. This approach yields a predicted path of M1 velocity that closely matches the data. The volatility of velocity after 1980 is explained by volatility in the returns on near monies.

Suggested Citation

  • Laurence Ball, 2002. "Short-run Money Demand," Economics Working Paper Archive 481, The Johns Hopkins University,Department of Economics.
    • Handle: RePEc:jhu:papers:481
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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