Toward a consistent estimate of the demand for monies: An application of the fourier flexible form
This paper offers new results for the demand for liquid assets. The paper embloys standard demand theory and, using duality and a full set of cross-equation restrictions, provides empirical results on U.S. data up to 1979 employing Gallant's Fourier flexible form. The properties of the globally flexible Fourier are discussed and the strength of the model, in producing statistically significant estimates of elasticities of substitution, is demonstrated on the data. The results show low and variable substitution (and complementarity) among the liquid assets and suggest that present techniques of aggregating monies may be unwise. This confirms work by Barnett, Offenbacher and Ewis-Fisher using different flexible forms.
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