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A Theoretical Derivation of the Functional Form of Short Run Money Holdings

Author

Listed:
  • R. D. Milbourne
  • P. Buckholtz
  • M. T. Wasan

Abstract

This paper considers the short run adjustment of money holdings towards their desired levels. A rationale for short run money holdings is given, which allows for uncertainty in cash flows, and it is shown how the adjustment to desired money balances will occur following a change in some of the economic variables. The model generates a particular form for the short run demand for money function, which is shown to be econometrically superior to the standard ad hoc formulation. The chief theoretical novelty is the derivation of the appropriate transient probability density of money holdings.

Suggested Citation

  • R. D. Milbourne & P. Buckholtz & M. T. Wasan, 1983. "A Theoretical Derivation of the Functional Form of Short Run Money Holdings," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(3), pages 531-541.
    • Handle: RePEc:oup:restud:v:50:y:1983:i:3:p:531-541.
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    File URL: http://hdl.handle.net/10.2307/2297679
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    Cited by:

    1. Greene, Clinton A., 2010. "Smooth-adjustment econometrics and inventory-theoretic money management," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1031-1047, June.
    2. Marcos Melo & Feruccio Bilich, 2013. "Expectancy balance model for cash flow," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(2), pages 240-252, April.
    3. Greene, Clinton A., 2001. "Trigger-target rules and the dynamics of aggregate money holdings," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1193-1219, August.
    4. Bardsen, Gunnar & Eitrheim, Oyvind & Jansen, Eilev S. & Nymoen, Ragnar, 2005. "The Econometrics of Macroeconomic Modelling," OUP Catalogue, Oxford University Press, number 9780199246502.
    5. Sagis, Leonard M.C. & Bedeaux, Dick, 1996. "The surface shear viscosity of a planar liquid-vapor interface I. Theory," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 230(3), pages 437-454.
    6. Ming-Chi Chen & Chin-Yu Wang & So-De Shyu, 2012. "Liquidity and the Future Stock Returns of the REIT Industry," The Journal of Real Estate Finance and Economics, Springer, vol. 45(3), pages 588-603, October.

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