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A Dynamic Baumol-Tobin Model of Money Demand

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  • Gregor W. Smith

Abstract

This note considers a stochastic version of the Baumol-Tobin model of the demand for money. A dynamic demand function is derived for the case in which independent variables change to new, steady-state values. The (S, s) inventory policy is shown to give rise to an aggregate, partial-adjustment equation with a variable adjustment speed. The methodology is that introduced to target-threshold models by Milbourne, Buckholtz, and Wasan (1983) in their study of the Miller-Orr model.

Suggested Citation

  • Gregor W. Smith, 1986. "A Dynamic Baumol-Tobin Model of Money Demand," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 465-469.
  • Handle: RePEc:oup:restud:v:53:y:1986:i:3:p:465-469.
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    File URL: http://hdl.handle.net/10.2307/2297641
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    Cited by:

    1. de Brouwer, Gordon & Ericsson, Neil R, 1998. "Modeling Inflation in Australia," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 433-449, October.
    2. Sunil Sharma & Neil R. Ericsson, 1998. "Broad money demand and financial liberalization in Greece," Empirical Economics, Springer, vol. 23(3), pages 417-436.
    3. Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.).
    4. Steven B. Kamin & Neil R. Ericsson, 1993. "Dollarization in Argentina," International Finance Discussion Papers 460, Board of Governors of the Federal Reserve System (U.S.).
    5. Hendry, David F. & Ericsson, Neil R., 1991. "Modeling the demand for narrow money in the United Kingdom and the United States," European Economic Review, Elsevier, vol. 35(4), pages 833-881, May.
    6. Chen, Show-Lin & Tsai, Li-Ju & Wu, Jyh-Lin, 2004. "A revisit to liquidity effects--evidence from a non-linear approach," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 501-517, September.
    7. Ericsson Neil R., 2016. "Testing for and estimating structural breaks and other nonlinearities in a dynamic monetary sector," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 20(4), pages 377-398, September.

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