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International Price Behavior and the Demand for Money

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  • Gandolfi, Arthur E
  • Lothian, James R

Abstract

Oil prices, commodity prices and American monetary policy, the last operating through a variety of channels, have all figures prominently in explanations of the international inflation process in the last 1960s and early '70s. Our major purpose in this paper is to test these various hypotheses. We do so in the context of a reduced-form rational-expectations price equation which we estimate for the United States and seven other industrial countries using quarterly data for the period 1955 through 1976. The principal conclusion that emerges from this exercise is that movements in domestic money in these countries served as the key link in the inflation process. The factors that produced these monetary changes, however, differed among countries. Price shocks of various sorts were clearly of secondary importance. The other important set of conclusions concerns the demand for money. In place of a traditional stock adjustment model, we used, GLS with a second- order correct ion for autocorrelation. We believe this produced more plausible estimates of the parameters of the long-run demand function and of the adjustment process it self.
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Suggested Citation

  • Gandolfi, Arthur E & Lothian, James R, 1983. "International Price Behavior and the Demand for Money," Economic Inquiry, Western Economic Association International, vol. 21(3), pages 295-311, July.
    • Handle: RePEc:oup:ecinqu:v:21:y:1983:i:3:p:295-311
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    Cited by:

    1. Lothian, James R., 2016. "Purchasing power parity and the behavior of prices and nominal exchange rates across exchange-rate regimes," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 5-21.
    2. Walter C. Labys & Alfred Maizels, 1990. "Commodity Price Fluctuations and Macro-economic Adjustments in the Developed Countries," WIDER Working Paper Series wp-1990-088, World Institute for Development Economic Research (UNU-WIDER).
    3. Anthony Cassese & James R. Lothian, 1983. "The Timing of Monetary and Price Changes and the International Transmission of Inflation," NBER Chapters, in: The International Transmission of Inflation, pages 58-82, National Bureau of Economic Research, Inc.
    4. Calza, Alessandro & Zaghini, Andrea, 2009. "Nonlinearities In The Dynamics Of The Euro Area Demand For M1," Macroeconomic Dynamics, Cambridge University Press, vol. 13(1), pages 1-19, February.
    5. Lothian, James R., 2009. "U.S. Monetary Policy and the Financial Crisis," The Journal of Economic Asymmetries, Elsevier, vol. 6(3), pages 25-40.
    6. James Boughton, 1992. "International comparisons of money demand," Open Economies Review, Springer, vol. 3(3), pages 323-343, October.

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