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Real money balances and the timing of consumption: an empirical investigation

  • Evan F. Koenig

This paper examines the correlation between changes in consumer spending on nondurables and services, and levels or changes in a variety of other variables that might be expected to enter directly as arguments of the household utility function or to serve as measures of household liquidity. Empirical results strongly suggest that an increase in real money balances raises the marginal utility of consumption. Once the influence of real balances is accounted for, there is little evidence that other variables have a direct impact on the timing of consumption. Copyright 1990, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Paper provided by Federal Reserve Bank of Dallas in its series Research Paper with number 8906.

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Date of creation: 1989
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Handle: RePEc:fip:feddrp:8906
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  1. Marjorie Flavin, 1985. "Excess Sensitivity of Consumption to Current Income: Liquidity Constraints or Myopia?," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 117-36, February.
  2. Ben S. Bernanke, 1982. "Adjustment Costs, Durables, and Aggregate Consumption," NBER Working Papers 1038, National Bureau of Economic Research, Inc.
  3. Rasche, Robert H., 1987. "M1 -- Velocity and money-demand functions: Do stable relationships exist?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 27(1), pages 9-88, January.
  4. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  5. Koenig, Evan F, 1989. "Investment and the Nominal Interest Rate: The Variable Velocity Case," Economic Inquiry, Western Economic Association International, vol. 27(2), pages 325-44, April.
  6. Friedman, Benjamin M, 1988. "Monetary Policy without Quantity Variables," American Economic Review, American Economic Association, vol. 78(2), pages 440-45, May.
  7. Mankiw, N Gregory & Summers, Lawrence H, 1986. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 415-29, November.
  8. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
  9. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March.
  10. Evan F. Koenig, 1989. "Real money balances and the timing of consumption: an empirical investigation," Research Paper 8906, Federal Reserve Bank of Dallas.
  11. Mankiw, N Gregory & Rotemberg, Julio J & Summers, Lawrence H, 1985. "Intertemporal Substitution in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 225-51, February.
  12. Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, vol. 7(4), pages 307-311.
  13. Koenig, Evan F, 1987. "The Short-run 'Tobin Effect' in a Monetary Optimizing Model," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 43-53, January.
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