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An Update on Money in the Production Function

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  • Cynthia Benzing

    (West Chester University)

Abstract

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.

Suggested Citation

  • Cynthia Benzing, 1989. "An Update on Money in the Production Function," Eastern Economic Journal, Eastern Economic Association, vol. 15(3), pages 235-239, Jul-Sep.
    • Handle: RePEc:eej:eeconj:v:15:y:1989:i:3:p:235-239
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume15/V15N3P235_239.pdf
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    References listed on IDEAS

    as
    1. Simos, Evangelos O., 1981. "Real money balances as a productive input : Further evidence," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 207-225.
    2. Keith Christian Jensen & Shyam Kamath & Robert Bennett, 1987. "Money in the Production Function: An Alternative Test Procedure," Eastern Economic Journal, Eastern Economic Association, vol. 13(3), pages 259-269, Jul-Sep.
    3. Sinai, Allen & Stokes, Houston H, 1972. "Real Money Balances: An Omitted Variable from the Production Functions?," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 290-296, August.
    4. Subrahmanyam, Ganti, 1980. "Real Money Balances as a Factor of Production: Some New Evidence," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 280-283, May.
    5. Short, Eugenie Dudding, 1979. "A New Look at Real Money Balances as a Variable in the Production Function," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 326-339, August.
    6. Nguyen, Hong V, 1986. "Money in the Aggregate Production Function: Reexamination and Further Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(2), pages 141-151, May.
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    Cited by:

    1. Stokes, Houston H., 2013. "Money balances in the production function: Nonlinear tests of model stability and measurement issues – two sides of the same coin?," The Journal of Economic Asymmetries, Elsevier, vol. 10(2), pages 101-114.
    2. S. J. Kamath & K. C. Jensen & R. E. Bennett, 1991. "A Counter-Counter Critique: A Reply," Eastern Economic Journal, Eastern Economic Association, vol. 17(4), pages 535-541, Oct-Dec.
    3. Stokes, Houston H., 2016. "Using nonlinear testing procedures to specify the right hand side of an aggregate production function containing financial variables in the period 1967–2011," The Journal of Economic Asymmetries, Elsevier, vol. 14(PB), pages 147-156.
    4. Shyam J. Kamath & K. C. Jensen & R. E. Bennett, 1989. "Reprise and Clarification [Money in the Production Function--An Alternative Test Procedure," Eastern Economic Journal, Eastern Economic Association, vol. 15(3), pages 241-243, Jul-Sep.
    5. Jonathan Benchimol, 2015. "Money in the production function: A new Keynesian DSGE perspective," Southern Economic Journal, John Wiley & Sons, vol. 82(1), pages 152-184, July.

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