An Update on Money in the Production Function
Using the Cobb-Douglas production function, this study tests whether money is a significant determinant of output. Three log-linear specifications are applied to U.S. annual data from 1959-85. Real output is expressed as a function of labor, capital, and real money balances. M1, M2, and M3 are tested in each of the three specifications. All three definitions of money are significant positive determinants of output in the unrestricted Cobb-Douglas. However, when the sum of the elasticities is restricted to one, the money coefficients become negative. This inconsistency needs to be further examined.
Volume (Year): 15 (1989)
Issue (Month): 3 (Jul-Sep)
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