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Expectations And Adjustments In The Monetary Sector

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  • Edgar L. Feige

    (University of Wisconsin-Madison)

Abstract

This paper examines the problem of appropriately specifying and estimating the money demand function in the presence of adaptive expectations and partial adjustment mechanisms. The paper demonstrates the difficulty of interpreting distributed lag reduced form representations of the monetary sector when both expectation and adjustment mechanisms are present. It finally presents and empirically estimates an identified model of the monetary sector with partial adjustment mechanisms and multiple expectation formation mechanisms and finds that the elasticity of adjustment appears to be unity, and the adaptive expectation elasticity of income conforms to that proposed by Friedman’s permanent income hypothesis. Reference: American Economic Review, Vol. LVII, No. 2 May, 1967, pp. 462-473.

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File URL: http://128.118.178.162/eps/mac/papers/0502/0502005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0502005.

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Length: 12 pages
Date of creation: 01 Feb 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0502005

Note: Type of Document - pdf; pages: 12
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Web page: http://128.118.178.162

Related research

Keywords: money demand; expectations; adjustments; distributed lags; identification; adaptive expectations; pasrtial adjustments; permanent income.;

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Cited by:
  1. G. S. Laumas, 1983. "The Demand for Money in the Recent Period," Eastern Economic Journal, Eastern Economic Association, vol. 9(1), pages 1-5, Jan-Mar.
  2. Burdekin, Richard C. K. & Burkett, Paul, 1996. "Hyperinflation, the exchange rate and endogenous money: post-World War I Germany revisited," Journal of International Money and Finance, Elsevier, vol. 15(4), pages 599-621, August.
  3. Jack Carr & Michael R. Darby, 1980. "The Role of Money Supply Shocks in the Short-Run Demand for Money," NBER Working Papers 0524, National Bureau of Economic Research, Inc.
  4. Daniel Himarios, 1986. "Administered interest rates and the demand for money in Greece under rational expectations," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 122(1), pages 173-188, March.
  5. Lance Girton & Don Roper, 1976. "Theory and implications of currency substitution," International Finance Discussion Papers 86, Board of Governors of the Federal Reserve System (U.S.).
  6. V. Vance Roley, 1985. "Money Demand Predictability," NBER Working Papers 1580, National Bureau of Economic Research, Inc.
  7. Arize, Augustine C. & Malindretos, John & Shwiff, Steven S., 1999. "Structural breaks, cointegration, and speed of adjustment Evidence from 12 LDCs money demand," International Review of Economics & Finance, Elsevier, vol. 8(4), pages 399-420, November.
  8. Ronald S. Koot, 1973. "Price Expectations and Monetary Adjustments in Latin America," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 109(II), pages 223-232, June.
  9. Erwin W. Heri, 1988. "Money Demand Regressions and Monetary Targeting Theory and Stylized Evidence," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 124(II), pages 123-149, June.

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