IDEAS home Printed from https://ideas.repec.org/p/cla/uclawp/098.html
   My bibliography  Save this paper

The Role of Money Supply Shocks in the Short-Run Demand for Money

Author

Listed:
  • Jack Carr

    (University of Toronto)

  • Michael R. Darby

    (UCLA)

Abstract

Previous models of the demand for money are either inconsistent with contemporaneous adjustment of the price level to expected changes in the nominal money supply or imply implausible fluctuations in interest rates in response to unexpected changes in the nominal money supply. This paper proposes a shock-absorber model of money demand in which money supply shocks affect the synchronization of purchases and sales of assets and so engender a temporary desire to hold more or less money than would otherwise be the case. Expected changes in nominal money do not cause fluctuations in real money inventories. The model is simultaneously estimated for the United States, United Kingdom, Canada, France, Germany, Italy, Japan, and the Netherlands using the postwar quarterly data set and instruments used in the Mark III International Transmission Model. The shock-absorber variables significantly improve the estimated short-run money demand functions in every case.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Jack Carr & Michael R. Darby, 1977. "The Role of Money Supply Shocks in the Short-Run Demand for Money," UCLA Economics Working Papers 098, UCLA Department of Economics.
    • Handle: RePEc:cla:uclawp:098
    as

    Download full text from publisher

    File URL: http://www.econ.ucla.edu/workingpapers/wp098.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Michael R. Darby & James R. Lothian & Arthur E. Gandolfi & Anna J. Schwartz & Alan C. Stockman, 1983. "II. The Mark III International Transmission Model," NBER Chapters, in: The International Transmission of Inflation, pages 83-84, National Bureau of Economic Research, Inc.
    2. Sargent, Thomas J, 1976. "A Classical Macroeconometric Model for the United States," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 207-237, April.
    3. Laidler, David, 1980. "The demand for money in the United States-- Yet again," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 12(1), pages 219-271, January.
    4. M. K. Lewis, 1978. "Interest Rates and Monetary Velocity in Australia and the United States," The Economic Record, The Economic Society of Australia, vol. 54(1), pages 111-126, April.
    5. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
    6. Cooper, J Phillip, 1972. "Asymptotic Covariance Matrix of Procedures for Linear Regression in the Presence of First- Order Autoregressive Disturbances," Econometrica, Econometric Society, vol. 40(2), pages 305-310, March.
    7. Darby, Michael R, 1976. "Rational Expectations under Conditions of Costly Information," Journal of Finance, American Finance Association, vol. 31(3), pages 889-895, June.
    8. Barro, Robert J & Santomero, Anthony J, 1972. "Household Money Holdings and The Demand Deposit Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(2), pages 397-413, May.
    9. Fair, Ray C, 1970. "The Estimation of Simultaneous Equation Models with Lagged Endogenous Variables and First Order Serially Correlated Errors," Econometrica, Econometric Society, vol. 38(3), pages 507-516, May.
    10. Darby, Michael R, 1972. "The Allocation of Transitory Income Among Consumers' Assets," American Economic Review, American Economic Association, vol. 62(5), pages 928-941, December.
    11. Gregory C. Chow, 1966. "On the Long-Run and Short-Run Demand for Money," Journal of Political Economy, University of Chicago Press, vol. 74(2), pages 111-111.
    12. Gibson, William E, 1970. "Interest Rates and Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 431-455, May-June.
    13. Stephen M. Goldfeld, 1976. "The Case of the Missing Money," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 683-740.
    14. Klein, Benjamin, 1974. "Competitive Interest Payments on Bank Deposits and the Long-Run Demand for Money," American Economic Review, American Economic Association, vol. 64(6), pages 931-949, December.
    15. Barro, Robert J, 1978. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 549-580, August.
    16. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
    17. Stephen M. Goldfeld, 1973. "The Demand for Money Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 577-646.
    18. repec:bla:ecorec:v:54:y:1978:i:145:p:111-26 is not listed on IDEAS
    19. Feige, Edgar L & Pearce, Douglas K, 1976. "Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy?," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 499-522, June.
    20. Cagan, Phillip & Gandolfi, Arthur, 1969. "The Lag in Monetary Policy as Implied by the Time Pattern of Monetary Effects on Interest Rates," American Economic Review, American Economic Association, vol. 59(2), pages 277-284, May.
    21. Edgar L. Feige, 2005. "Expectations And Adjustments In The Monetary Sector," Macroeconomics 0502005, University Library of Munich, Germany.
    22. A. A. Walters, 1967. "The Demand for Money--the Dynamic Properties of the Multiplier," Journal of Political Economy, University of Chicago Press, vol. 75(3), pages 293-293.
    23. Michael R. Darby, 1974. "The Permanent Income Theory of Consumption — A Restatement," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(2), pages 228-250.
    24. Goldberg, Matthew & Thurston, Thom B, 1977. "Monetarism, Overshooting, and the Procyclical Movement of Velocity," Economic Inquiry, Western Economic Association International, vol. 15(1), pages 26-32, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    2. Erwin W. Heri, 1988. "Money Demand Regressions and Monetary Targeting Theory and Stylized Evidence," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 124(II), pages 123-149, June.
    3. Leeper, Eric M. & Gordon, David B., 1992. "In search of the liquidity effect," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 341-369, June.
    4. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
    5. Michael Bordo & Anna J. Schwartz, 2010. "David Laidler on Monetarism," Palgrave Macmillan Books, in: Robert Leeson (ed.), David Laidler’s Contributions to Economics, chapter 3, pages 44-59, Palgrave Macmillan.
    6. Bordo, Michael D. & Jonung, Lars, 1990. "The long-run behavior of velocity: The institutional approach revisited," Journal of Policy Modeling, Elsevier, vol. 12(2), pages 165-197.
    7. Gauger, Jean Ann, 1984. "Three essays on the neutrality of anticipated money growth," ISU General Staff Papers 198401010800008758, Iowa State University, Department of Economics.
    8. Charles I. Plosser, 1989. "Money and business cycles: a real business cycle interpretation," Proceedings, Federal Reserve Bank of St. Louis.
    9. V. Vance Roley, 1985. "Money Demand Predictability," NBER Working Papers 1580, National Bureau of Economic Research, Inc.
    10. Felipe Larraín & Aníbal Larraín, 1988. "El Caso del Dinero Desaparecido Chile 1984-1986," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 25(75), pages 247-282.
    11. Fair, Ray C, 1987. "International Evidence on the Demand for Money," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 473-480, August.
    12. Tin, Jan, 1999. "The impacts of racial differences on demand for financial assets," International Review of Financial Analysis, Elsevier, vol. 8(3), pages 269-282, March.
    13. Antoine d'Autume, 1986. "Les anticipations rationnelles dans l'analyse macro-économique," Revue Économique, Programme National Persée, vol. 37(2), pages 243-284.
    14. Duo Qin, 2010. "Modelling of the Inflation-Unemployment Tradeoff from the Perspective of the History of Econometrics," Working Papers 661, Queen Mary University of London, School of Economics and Finance.
    15. Tin, Jan, 1998. "Household demand for financial assets: A life-cycle analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(4), pages 875-897.
    16. Duo Qin, 2010. "Modelling of the Inflation-Unemployment Tradeoff from the Perspective of the History of Econometrics," Working Papers 661, Queen Mary University of London, School of Economics and Finance.
    17. G. S. Laumas, 1991. "Impact of Monetary and Fiscal Policies on Real Output," Eastern Economic Journal, Eastern Economic Association, vol. 17(2), pages 157-163, Apr-Jun.
    18. Georgopoulos, George J., 2006. "Estimating the demand for money in Canada: Does including an own rate of return matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(4), pages 513-529, September.
    19. Ali F. Darrat, 1985. "Does Anticipated Fiscal Policy Matter? The Italian Evidence," Public Finance Review, , vol. 13(3), pages 339-352, July.
    20. Mishkin, Frederic S, 1982. "Does Anticipated Aggregate Demand Policy Matter? Further Econometric Results," American Economic Review, American Economic Association, vol. 72(4), pages 788-802, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cla:uclawp:098. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David K. Levine (email available below). General contact details of provider: http://www.econ.ucla.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.