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Re-examining the Buffer-Stock Model of Money

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  • Milbourne, Ross D

Abstract

This paper critically examines recent papers in the buffer stock or supply side disequilibrium models of money. The paper first investigates the assumptions at the m icroeconomic level and concludes that even with these assumptions, aggregate behavior does not necessarily follow buffer-stock models in which excess cash balances are held involuntarily. In a simple model with uncertain cash flows, it is shown that in the aggregate short-run involuntary cash holdings are negligible. If the buffer-stock story is applicable, it is to a broader definition of money than used in most empirical work. The second part of the paper examines empirical work and argues that the buffer-stock idea cannot be implemented using single equation techniques, and that when viewed appropriately, current empirical result s refute the buffer-stock idea as it is currently modeled. Copyright 1987 by Royal Economic Society.

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  • Milbourne, Ross D, 1987. "Re-examining the Buffer-Stock Model of Money," Economic Journal, Royal Economic Society, vol. 97(388a), pages 130-142, Supplemen.
    • Handle: RePEc:ecj:econjl:v:97:y:1987:i:388a:p:130-42
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    Cited by:

    1. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
    2. Joseph Atta-Mensah, 1996. "A Modified P*-Model of Inflation Based on M1," Staff Working Papers 96-15, Bank of Canada.
    3. Daiki Maki & Shin-ichi Kitasaka, 2015. "Residual-based tests for cointegration with three-regime TAR adjustment," Empirical Economics, Springer, vol. 48(3), pages 1013-1054, May.
    4. Chen, Show-Lin & Tsai, Li-Ju & Wu, Jyh-Lin, 2004. "A revisit to liquidity effects--evidence from a non-linear approach," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 501-517, September.
    5. Robert-Paul Berben, 2007. "Does stock market uncertainty impair the use of monetary indicators in the euro area?," Applied Economics, Taylor & Francis Journals, vol. 39(1), pages 13-23.

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