On the Sluggish Response of Prices to Money in an Inventory-Theoretic Model of Money Demand
AbstractWe exposit the link between money, velocity and prices in an inventory-theoretic model of the demand for money and explore the extent to which such a model can account for the short-run volatility of velocity, the negative correlation of velocity and the ratio of money to consumption, and the resulting stickiness' of the aggregate price level relative to a benchmark model with constant velocity. We find that an inventory-theoretic model of the demand for money is a natural framework for understanding these aspects of the dynamics of money, velocity and prices in the short run.
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Date of creation: Oct 2003
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Find related papers by JEL classification:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-30 (All new papers)
- NEP-MAC-2003-11-30 (Macroeconomics)
- NEP-MON-2003-11-30 (Monetary Economics)
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