On the shock-absorption view of money: international evidence from the 1960s and 1970s

Kanniainen, Vesa; Tarkka, Juha

doi:10.1080/00036848600000063

Cited by 12 publications

(6 citation statements)

References 13 publications

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“…Inherent in this kind of framework is the notion that it may be in the individual's interest not to make instantaneous adjustments to money balances as a result of the time required for searching behaviour (Kannianen and Tarkka, 1986), or because of high costs of adjustment in the short run (Cuthbertson and Taylor, 1987b). Minimising the costs of adjustment may lead the individual to conclude that there is an incentive occasionally to do nothing towards the actual process of adjustment in the short run (see Cabellero and Engel, 1991, BenIlan and Blinder, 1992).…”

Section: Microfoundations Of Buffer Stock Modelsmentioning

confidence: 99%

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Microfoundations for a Stable Demand for Money Function

Mizen

1997

The Economic Journal

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Scientific revolutions seldom occur when the prevailing theories appear to be performing well : it is only when the accepted theory fails to offer a satisfactory explanation of events that new and more robust theories are proposed. Of these new theories the one which can explain the successful performance of the previous theory and also the events which led to its demise becomes the replacement. So it is in the history of modern monetary economics. The failure of the partial adjustment model in the mid-s is well documented in the United Kingdom and the United States and the search for a replacement has been the main point on the agenda since that time. There are many contending theories, some of which are advocated by the other contributors to this controversy, but the mark of a truly better theory which can be claimed to supersede the partial adjustment model is one that can explain the success and the breakdown of the previous theory as well as the events subsequently.Central to the argument of this paper is the importance of individual behaviour in the context of a market for monetary assets. Only by means of careful investigation of the microeconomic behaviour underpinning monetary economics at the individual and the market level can the stability of the money demand function be restored. It is the purpose of this paper to suggest that the buffer stock approach has gone further than other approaches in dealing with the fundamental micro-foundations of the demand for money. It does not suggest that other approaches have no microfoundations but they tend to concentrate exclusively on specific aspects of the micro-structure such as separability and ignore others relating to the behaviour of individual optimisers in a monetary market. The buffer stock model has firm micro-foundations which can explain the events both before and after the breakdown of the partial adjustment model.Section I provides an historical background to the debate and Section II gives a brief overview of buffer stock models which shows that, unlike other approaches, they have been able to reconcile the past success of the partial adjustment model with its present failure. The nature of the microfoundations of buffer stock models are the source of the success and are discussed in more detail in Section III. The final section evaluates the buffer stock approach in the light of the other alternatives.

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Section: Microfoundations Of Buffer Stock Modelsmentioning

confidence: 99%

“…4 4 Variations on this model due to Kannianen and Tarkka (1986) allow for a low adjustment process to account for the search time required to make wise investment decisions which are more difficult to reverse in less liquid assets. …”

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confidence: 99%

Microfoundations for a Stable Demand for Money Function

Mizen

1997

The Economic Journal

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“…Table 2. Potential Variables and Their Predicted Signs Following D. Hendry's general-to-specific approach (see, e.g., Hendry (1979) and Gilbert (1986)), we started for each of the three equations from the following unrestricted model: 2/ I/ The buffer stock and disequilibrium money approaches also link short-term money demand to credit market conditions (for an overview, see, e.g., Andersen (1985) and for an application, see, e.g., Kanniainen and Tarkka (1986), but under different assumptions. These approaches assume that disequilibrium in credit markets is reflected in the first place in holdings of money and/or liquid assets.…”

Section: And the Country's International Reserve Position (Ir) Variab...mentioning

confidence: 99%

From Direct to Indirect Monetary Policy Instruments the French Experience Reconsidered

Quintyn

1991

SSRN Journal

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“…The shock absorber literature, e.g. Carr and Darby (1981), MacKinnon and Milbourne (1984), Carr, Darby and Thornton (1985), Cuthbertson and Taylor (1986, 1988, Kanniainen and Tarkka (1986), Muscatelli (1988), concentrates on incorporating unanticipated shocks to the aggregate money supply in single-equation aggregate demand for money functions and, in general, ignores the potentially important subsequent spillover effects. The disequilibrium money models, e.g.…”

Section: Ftnancial Buffers In Sectoral Portfoliosmentioning

confidence: 99%

“…Currie and Kenally (1985), for example, stress that the structure of adjustment costs across different financial instruments is important in determining the choice of financial buffers and costs of gathering information and 'entry fee'/financial service charges are likely to be different for different types of agents. Kanniainen and Tarkka (1986) also argue that payments processes and information constraints faced by different agents are likely to be different.…”

Section: Ftnancial Buffers In Sectoral Portfoliosmentioning

confidence: 99%

Testing for Financial Buffer Stocks in Sectoral Portfolio Models

Owen¹

1990

The Review of Economics and Statistics

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On the shock-absorption view of money: international evidence from the 1960s and 1970s

Cited by 12 publications

References 13 publications

Microfoundations for a Stable Demand for Money Function

Microfoundations for a Stable Demand for Money Function

From Direct to Indirect Monetary Policy Instruments the French Experience Reconsidered

Testing for Financial Buffer Stocks in Sectoral Portfolio Models

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