The Behavior of Money Demand in the 1980s

Roles of Stock Price and Exchange Rate in Slovakia's Money Demand Function and Policy Implications

“…Small and Porter (1989), Hetzel andMehra (1989), Hafer andJansen (1991), Mehra (1993Mehra ( , 1997, Duca (2000), Carlson et al (2000), and others examined the behavior and stability of M2 for the United States. For example, Mehra (1997) indicated that the demand for M2 shifted leftward during the early 1990s and that the behavior of M2 has remained relatively stable since 1994 and may be useful for the analysis of monetary policy.…”

On the impossibility of a stable and low GDP elasticity of money demand: the arithmetic of aggregation, replication and income growth

“…We believe investigations such as those of Friedman and Schwartz (1982), and of Hetzel and Mehra (1989) are on the right track when they choose to measure money and income in per capita terms. But this scaling device is missynchronized by approximately twenty years because most of the young are not signi® cant managers of money and income.…”

Recent developments in understanding the demand for money

“…That episode spawned a literature that either attempted to examine the sources of that instability (e.g., Dotsey, 1984;Duca, 1992b;Hetzel & Mehra, 1989;Porter, Simpson, & Mauskopf, 1980;Tinsley, Garrett, & Friar, 1981) or examined whether there was no shift in money demand if the correct specification were used (e.g., Anderson & Rasche, 2001a,b;Baba, Hendry, & Starr, 1992;Bomberger, 1993;Christ, 1993;Hess, Jones, & Porter, 1998). 3 Another period of pronounced change occurred following the passage of DIDMCA, which many studies argue altered M1's demand function by breaking an upward trend in its velocity (Rasche, 1987(Rasche, , 1990) and by making M1 demand more interest sensitive (e.g., Milbourne, 1986;Mulligan & Sala-i-Martin, 2000).…”

“…When the 1990s began, M2 was generally viewed as having a more stable demand function than narrower monetary aggregates, largely on grounds that it better internalized portfolio shifts between M1 and nonM1 M2 components, particularly following steps to deregulate deposits (e.g., Hetzel & Mehra, 1989;Mehra, 1992b;Miller, 1991;Moore et al, 1990). Furthermore, its long-run velocity was seen as being more stable than that of other aggregates, partly inspiring M2's use in the P-star model of Hallman, Porter, and Small (1991).…”