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Buffer-Stock Money: Interpreting Short-Run Dynamics Using Long-Run Restrictions

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  • Lastrapes, William D
  • Selgin, George A

Abstract

Time-series techniques are used to assess the quantitative importance of buffer-stock money--the short-run response of real money holdings to nominal money supply shocks. The empirical model, a vector autoregression of real and nominal money balances, captures general dynamic properties of the time series but requires theoretical restrictions for sensible interpretation. The authors just-identify the system by imposing a long-run neutrality restriction: nominal money shocks have no permanent effects on real money. They find that buffer-stock effects play an important role in the evolution of real M1 in the short-run. The evidence for M2 is less conclusive. Copyright 1994 by Ohio State University Press.

Suggested Citation

  • Lastrapes, William D & Selgin, George A, 1994. "Buffer-Stock Money: Interpreting Short-Run Dynamics Using Long-Run Restrictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 34-54, February.
  • Handle: RePEc:mcb:jmoncb:v:26:y:1994:i:1:p:34-54
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    Cited by:

    1. Paul Lau, Sau-Him, 2000. "On the validity and identification of long-run restrictions for a cointegrated system," Economic Modelling, Elsevier, vol. 17(4), pages 485-496, December.
    2. Christopher A. Sims & Tao Zha, 1999. "Error Bands for Impulse Responses," Econometrica, Econometric Society, vol. 67(5), pages 1113-1156, September.
    3. Luis Fernando Melo Velandia & Franz Hamann Salcedo, 1998. "Inflacion Basica. Una Estimacion Basada En Modelos Var Estructurales," BORRADORES DE ECONOMIA 002848, BANCO DE LA REPÚBLICA.
    4. Evans, J. Lynne & Amey, Michael C., 1996. "Seigniorage and tax smoothing: Testing the extended tax-smoothing model," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 111-125.
    5. Lastrapes, William D. & Selgin, George, 1995. "The liquidity effect: Identifying short-run interest rate dynamics using long-run restrictions," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 387-404.
    6. Lau, Sau-Him Paul, 2008. "Using an error-correction model to test whether endogenous long-run growth exists," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 648-676, February.
    7. Martin B. Schmidt, 2004. "Exogeneity within the M2 Demand Function: Evidence from a Large Macroeconomic System," Economic Inquiry, Western Economic Association International, vol. 42(4), pages 634-646, October.
    8. Lastrapes, W. D., 1998. "International evidence on equity prices, interest rates and money," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 377-406, June.
    9. Nicholas Apergis, 2001. "Reassessing the role of buffer stock money under oil price shocks," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(1), pages 20-30, March.
    10. Martin Schmidt, 2003. "Money and prices: evidence from the G7 countries," Applied Economics, Taylor & Francis Journals, vol. 35(17), pages 1799-1809.
    11. Hany Guirguis & Martin B. Schmidt, 2005. "Output Variability and the Money-Output Relationship," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 4(1), pages 53-66, April.

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