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On the stability of money demand

  • Robert Lucas, Jr.

    (University of Chicago)

  • Juan Nicolini

    (Federal Reserve Bank of Minneapolis)

In this paper we consider a simple model of transactional assets management to evaluate the changes in banking regulation that passed between 1980 and 1982. The model implies that the newly created deposits in the US after the deregulation should be taken into account in the proper definition of money, in a way the model itself makes explicit. We show that once this is taken into account, the money demand equation characterized by Meltzer (1960) and Lucas (2000) remained remarkably stable.

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File URL: https://www.economicdynamics.org/meetpapers/2013/paper_353.pdf
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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 353.

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Date of creation: 2013
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Handle: RePEc:red:sed013:353
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. Scott Freeman & Finn E. Kydland, 1998. "Monetary aggregates and output," Working Papers 1998-013, Federal Reserve Bank of St. Louis.
  2. Marvin Goodfriend & Monica Hargraves, 1983. "A historical assessment of the rationales and functions of reserve requirements," Working Paper 83-01, Federal Reserve Bank of Richmond.
  3. Peter N. Ireland, 2008. "On the Welfare Cost of Inflation and the Recent Behavior of Money Demand," NBER Working Papers 14098, National Bureau of Economic Research, Inc.
  4. Reynard, Samuel, 2004. "Financial market participation and the apparent instability of money demand," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1297-1317, September.
  5. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
  6. Alfred Broaddus & Marvin Goodfriend, 1985. "Base drift and the longer run growth of M1 : experience from a decade of monetary targeting," Working Paper 85-01, Federal Reserve Bank of Richmond.
  7. Julio J. Rotemberg, 1982. "A Monetary Equilibrium Model with Transactions Costs," NBER Working Papers 0978, National Bureau of Economic Research, Inc.
  8. Brian Motley, 1988. "Should M2 be redefined?," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 33-51.
  9. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 66(4), pages 545-556.
  10. Fernando Alvarez & Francesco Lippi, 2007. "Financial Innovation and the Transactions Demand for Cash," EIEF Working Papers Series 0807, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2007.
  11. Allan H. Meltzer, 1963. "The Demand for Money: The Evidence from the Time Series," Journal of Political Economy, University of Chicago Press, vol. 71, pages 219.
  12. R. Alton Gilbert, 1986. "Requiem for Regulation Q: what it did and why it passed away," Review, Federal Reserve Bank of St. Louis, issue Feb, pages 22-37.
  13. Lucas, Robert E., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 137-167, January.
  14. Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 73(5), pages 871-80, December.
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