IDEAS home Printed from https://ideas.repec.org/a/jae/japmet/v3y1988i4p295-305.html
   My bibliography  Save this article

Are Price Equations Really Money Demand Equations on Their Heads?

Author

Listed:
  • Mackinnon, James G
  • Milbourne, Ross D

Abstract

It is often argued that the dependent variable in money demand functions is really the price level, the money stock itself being exogenous. A recent approach which stresses the theme is the "buffer stock" hypothesis, in which money supply shocks explicitly appear in the demand for money function, because prices and interest rates do not adjust rapidly enough to bring about short-run equilibrium in the money market. Although this approach has been adopted by a number of authors, it is not been subjected to much econometric testing. In this paper, we outline the economic and econometric issues involved in testing the exogenous money/buffer stock hypothesis, and subject it to a variety of tests using three different data sets. None of our results supports the hypothesis. Fundamental restrictions are rejected at very high levels of significance, and a reasonably good money demand equation is seen to be badly misspecified if interpreted as a price equation.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Mackinnon, James G & Milbourne, Ross D, 1988. "Are Price Equations Really Money Demand Equations on Their Heads?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 295-305, October-D.
    • Handle: RePEc:jae:japmet:v:3:y:1988:i:4:p:295-305
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0883-7252%28198810%2F198812%293%3A4%3C295%3AAPERMD%3E2.0.CO%3B2-3&origin=bc
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Levent, Korap, 2008. "Modeling base money demand and inflation for the Turkish economy," MPRA Paper 19617, University Library of Munich, Germany.
    2. Ryland Thomas, 1997. "The Demand for M4: A Sectoral Analysis. Part 1 - The Personal Sector," Bank of England working papers 61, Bank of England.
    3. Cem Saatçioðlu & Levent Korap, 2007. "Turkish Money Demand, Revisited: Some Implications For Inflation And Currency Substitution Under Structural Breaks," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 21(1+2), pages 107-124.

    More about this item

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Are price equations really money demand equations on their heads? (Journal of Applied Econometrics 1988) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jae:japmet:v:3:y:1988:i:4:p:295-305. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0883-7252/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.