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Short-Run Money Demand

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  • Laurence Ball

Abstract

The paper estimates a long-run demand function for M1, using U.S. data for 1959-1993. This paper interprets deviations from this long-run relation with Goldfeld's partial adjustment model. A key innovation is the choice of the interest rate in the money demand function. Most previous work uses a short-term market rate, but this paper uses the average return on near monies' close substitutes for M1 such as savings accounts and money market mutual funds. This approach yields a predicted path of M1 velocity that closely matches the data. The volatility of velocity after 1980 is explained by volatility in the returns on near monies.

Suggested Citation

  • Laurence Ball, 2002. "Short-Run Money Demand," NBER Working Papers 9235, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9235
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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