Neoclassical Consumer Demand Theory and the Demand for Money
M. Friedman (1956) suggests that the demand for money should be analyzed in terms of consumer demand theory, although often the interpretation of empirical results from studies using aggregate data appears to be in terms of the "motives approach" (i.e., transactions, precautionary, and speculative motives). The authors develop Friedman's ideas within an explicit model of consumer theory and find that they provide a consistent framework for analyzing portfolio choice and offer greater insights into results from aggregate studies of the demand for money than the motives approach. In particular, the authors provide a new interpretation of the role of nominal interest rates, inflation, and a Hicksian measure of wealth in the demand for money function. Copyright 1991 by Royal Economic Society.
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Volume (Year): 101 (1991)
Issue (Month): 407 (July)
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