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Smooth-adjustment econometrics and inventory-theoretic money management

  • Greene, Clinton A.
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    A growing number of empirical papers use Miller-Orr (S, s) money management as economic motivation for application of non-linear smooth-adjustment models. This paper shows such models are not implied by the Miller-Orr economy. Instead, the Miller-Orr economy implies non-standard smooth-adjustment, as derived in the neglected (and misinterpreted) work of Milbourne et al. (1983). Remarkably, this function includes a varying weight on the lagged dependent variable, capturing static (not dynamic) effects. Interpretations of these apparent dynamics are presented, some of which may be useful in non-monetary (S, s) contexts. Results imply a new agenda for applied smooth-adjustment modeling of money.

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    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 34 (2010)
    Issue (Month): 6 (June)
    Pages: 1031-1047

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    Handle: RePEc:eee:dyncon:v:34:y:2010:i:6:p:1031-1047
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