IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Should consumer expenditures be the scale variable in empirical money demand equations?

Listed author(s):
  • Daniel L. Thornton

Traditionally, real GNP or permanent income or wealth have been the scale variable of choice in empirical money demand equations. Recently, Mankiw and Summers (1986) argue that consumer expenditures are an ideal proxy for permanent income in money demand, and they provide evidence that total consumption expenditures or consumption expenditures on non-durables and services are better scale variables in money demand than current GNP. This result is odd because consumer expenditures reflect only the desires of the households, and a significant proportion of money balances is held by firms. This paper shows the difficulties in using consumer expenditures as a proxy for permanent income, shows that, properly estimated and compared, consumer expenditures are no better as a scale variable than real GNP and provides evidence that permanent income is a better scale variable than either consumer expenditures or GNP.

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: no

File URL:
Download Restriction: no

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1988-003.

in new window

Date of creation: 1988
Handle: RePEc:fip:fedlwp:1988-003
Contact details of provider: Postal:
P.O. Box 442, St. Louis, MO 63166

Fax: (314)444-8753
Web page:

More information through EDIRC

Order Information: Email:

No references listed on IDEAS
You can help add them by filling out this form.

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:fip:fedlwp:1988-003. 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: (Anna Xiao)

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.