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Money-Demand Variability: A Demand-Systems Approach

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  • Fisher, Douglas

Abstract

This article tests the Fourier flexible form on quarterly U.S. monetary data. The data have been prescreened for consistency with the general axiom of revealed preference, and subindexes are formed using the Divisia approach. In this article, the global Fourier model fits well, although there is a potential problems of overfitting and certain data points exhibit behavior inconsistent with the model. The elasticities are variable over time, particularly around business-cycle troughs. It appears that financial asset demand surfaces are highly nonlinear and the many unsuccessful existing attempts to estimate money demand may not have worked well for this reason.

Suggested Citation

  • Fisher, Douglas, 1992. "Money-Demand Variability: A Demand-Systems Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(2), pages 143-151, April.
  • Handle: RePEc:bes:jnlbes:v:10:y:1992:i:2:p:143-51
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    Cited by:

    1. william, barnett, 2013. "Friedman and Divisia Monetary Measures," MPRA Paper 52310, University Library of Munich, Germany.
    2. Leigh Drake & Adrian Fleissig, 2004. "Admissible Monetary Aggregates and UK Inflation Targeting," Money Macro and Finance (MMF) Research Group Conference 2004 2, Money Macro and Finance Research Group.
    3. Cysne, Rubens Penha & Turchick, David, 2010. "Welfare costs of inflation when interest-bearing deposits are disregarded: A calculation of the bias," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1015-1030, June.
    4. Fleissig, Adrian R. & Whitney, Gerald A., 2008. "A nonparametric test of weak separability and consumer preferences," Journal of Econometrics, Elsevier, vol. 147(2), pages 275-281, December.
    5. Fleissig, Adrian & Swofford, James L., 1996. "A dynamic asymptotically ideal model of money demand," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 371-380, April.
    6. Douglas Fisher & Adrian R. Fleissig & Apostolos Serletis, 2006. "An Empirical Comparison of Flexible Demand System Functional Forms," World Scientific Book Chapters,in: Money And The Economy, chapter 13, pages 247-277 World Scientific Publishing Co. Pte. Ltd..
    7. Chen, Show-Lin & Tsai, Li-Ju & Wu, Jyh-Lin, 2004. "A revisit to liquidity effects--evidence from a non-linear approach," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 501-517, September.
    8. Fleissig, Adrian R. & Jones, Barry E., 2015. "The impact of commercial sweeping on the demand for monetary assets during the Great Recession," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 412-422.
    9. Drake, Leigh & Fleissig, Adrian R., 2010. "Substitution between monetary assets and consumer goods: New evidence on the monetary transmission mechanism," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2811-2821, November.

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