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Monetary dynamics: a market approach

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  • Martin Schmidt

Abstract

The behaviour of the short-run responses implied by the identification of a long-run money demand relationship is examined. These responses have recently been interpreted as representing the policy stance of the monetary authority. However, as movements in the monetary aggregate reflect both demand and supply adjustments, estimating the short-run dynamics solely within the money demand relationship may produce biased results. In order to address this issue, the paper explicitly acknowledges the importance of the supply of money function by including the function alongside the demand for money function. While the interaction of the two equations continues to produce the long-run quantity theory result, the additional detail provides more accurate estimates of the individual short-run adjustments within the two equations.

Suggested Citation

  • Martin Schmidt, 2003. "Monetary dynamics: a market approach," Applied Economics, Taylor & Francis Journals, vol. 35(2), pages 139-152.
  • Handle: RePEc:taf:applec:v:35:y:2003:i:2:p:139-152
    DOI: 10.1080/0003684022000015955
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    1. José Fernando Escobar R. & Carlos Esteban Posada P., 2005. "Dinero, precios, tasa de interés y actividad económica: un modelo del caso colombiano 1984:I-2003:IV," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(1), pages 1-34, enero-mar.
    2. José Fernando Escobar R. & Carlos Esteban Posada P., 2004. "Dinero, Precios, Tasa de Interés y Actividad Económica: Un Modelo del Caso Colombiano," Borradores de Economia 303, Banco de la Republica de Colombia.

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