IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

The long and short of money: short-run dynamics within a structural model

  • Martin Schmidt

Empirical examinations into aggregate money demand functions, generally, incorporate a monetary aggregate as the dependent variable. While this custom may be inefficient, it does not create any new difficulties for estimating the demand function's long-run parameters, as money supply would equal money demand. The short-run estimates, however, are not as fortunate. As the monetary aggregate is a measure of supply and not demand, one needs to tease out the short-run responses associated with money demand changes with those which are associated with monetary supply shocks. The present article, therefore, proposes a more complete representation of monetary sector behaviour and in doing so, finds significant support for the so-called buffer stock money demand models.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 40 (2007)
Issue (Month): 2 ()
Pages: 175-192

in new window

Handle: RePEc:taf:applec:v:40:y:2007:i:2:p:175-192
Contact details of provider: Web page:

Order Information: Web:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
  2. 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.
  3. Jack Carr & Michael R. Darby, 1977. "The Role of Money Supply Shocks in the Short-Run Demand for Money," UCLA Economics Working Papers 098, UCLA Department of Economics.
  4. Fischer, Andreas M. & Nicoletti, Giuseppe, 1993. "Regression direction and weak exogeneity: Determining the conditioning properties of US money demand functions," Journal of Monetary Economics, Elsevier, vol. 32(2), pages 213-235, November.
  5. Michelle R. Garfinkel & Daniel L. Thornton, 1991. "Alternative measures of the monetary base: what are the differences and are they important?," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 19-35.
  6. Cuthbertson, Keith & Taylor, Mark P, 1987. "The Demand for Money: A Dynamic Rational Expectations Model," Economic Journal, Royal Economic Society, vol. 97(388a), pages 65-76, Supplemen.
  7. Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
  8. Baghestani, Hamid & Mott, Tracy, 1997. "A Cointegration Analysis of the U.S. Money Supply Process," Journal of Macroeconomics, Elsevier, vol. 19(2), pages 269-283, April.
  9. Laidler, David, 1980. "The demand for money in the United States-- Yet again," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 12(1), pages 219-271, January.
  10. Gordon, Robert J, 1984. "The Short-run Demand for Money: A Reconsideration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 403-34, November.
  11. Carr, Jack & Darby, Michael R. & Thornton, Daniel L., 1985. "Monetary anticipations and the demand for money: Reply to MacKinnon and Milbourne," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 251-257, September.
  12. Haslag, Joseph H & Hein, Scott E, 1990. "Economic Activity and Two Monetary Base Measures," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 672-76, November.
  13. Miyao, Ryuzo, 1996. "Does a Cointegrating M2 Demand Relation Really Exist in the United States?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 365-80, August.
  14. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
  15. Haug, Alfred A., 1996. "Tests for cointegration a Monte Carlo comparison," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 89-115.
  16. Coats, Warren L, Jr, 1982. "Modeling the Short-Run Demand for Money with Exogenous Supply," Economic Inquiry, Western Economic Association International, vol. 20(2), pages 222-39, April.
  17. Boughton, James M. & Tavlas, George S., 1990. "Modeling money demand in large industrial countries: Buffer stock and error correction approaches," Journal of Policy Modeling, Elsevier, vol. 12(2), pages 433-461.
  18. Laidler, David, 1984. "The 'Buffer Stock' Notion in Monetary Economics," Economic Journal, Royal Economic Society, vol. 94(376a), pages 17-34, Supplemen.
  19. Mellander, Erik & Vredin, A & Warne, A, 1992. "Stochastic Trends and Economic Fluctuations in a Small Open Economy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(4), pages 369-94, Oct.-Dec..
  20. Engle, Robert F. & Hendry, David F., 1993. "Testing superexogeneity and invariance in regression models," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 119-139, March.
  21. Schmidt, Martin B., 2001. "The long and short of money and prices: a market equilibrium approach," Journal of Economics and Business, Elsevier, vol. 53(6), pages 563-583.
  22. James M. Boughton, 1991. "Long-Run Money Demand in Large Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 1-32, March.
  23. Harvey Cutler & Stephen Davies & Martin Schmidt, 2000. "Forecasting in a large macroeconomic system," Applied Economics, Taylor & Francis Journals, vol. 32(13), pages 1711-1718.
  24. Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 313-334, June.
  25. Crowder, William J, 1998. "The Long-Run Link between Money Growth and Inflation," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 229-43, April.
  26. Harbo, Ingrid, et al, 1998. "Asymptotic Inference on Cointegrating Rank in Partial Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 388-99, October.
  27. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
  28. Fischer, Andreas M, 1993. "Is Money Really Exogenous? Testing for Weak Exogeneity in Swiss Money Demand," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 248-58, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:40:y:2007:i:2:p:175-192. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.