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A monetarist money demand function

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  • Robert L. Hetzel

Abstract

The notion that excessive money supply growth is the primary cause of inflation is by now so familiar as to be a virtual commonplace. Not so widely understood, however, is the monetarist reasoning underlying this view. Robert L. Hetzel contributes to this understanding by spelling out the assumptions underlying the monetarist theory of inflation in A Monetarist Money Demand Function. Most Economists agree that the price level is determined by the interaction of the demand for and supply of money. Monetarists go a step further, holding that since changes in the demand for money are small relative to changes in money supply, most of the changes in the general price level are caused by money stock changes. In addition to demonstrating the logic underlying this view, Hetzel suggests a functional form that can be used to test the strength of the predicted relationship between money and inflation.

Suggested Citation

  • Robert L. Hetzel, 1984. "A monetarist money demand function," Economic Review, Federal Reserve Bank of Richmond, vol. 70(Nov), pages 15-19.
    • Handle: RePEc:fip:fedrer:y:1984:i:nov:p:15-19:n:v.70no.6
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    References listed on IDEAS

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    1. Salemi, Michael K & Sargent, Thomas J, 1979. "The Demand for Money during Hyperinflation under Rational Expectations: II," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 741-758, October.
    2. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2.
    3. Hetzel, Robert L, 1984. "Estimating Money Demand Functions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 185-193, May.
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    1. Hossain, Akhand Akhtar, 2010. "Monetary targeting for price stability in Bangladesh: How stable is its money demand function and the linkage between money supply growth and inflation?," Journal of Asian Economics, Elsevier, vol. 21(6), pages 564-578, December.

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    Keywords

    Inflation (Finance); Money;

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