Trigger–target rules and the dynamics of aggregate money holdings

Smooth-adjustment econometrics and inventory-theoretic money management

“…Counter-example to smooth-adjustment intuition: empirical frequency of balances (m) with total M 4M .12 Greene (2001) explores the very complex nature of Miller-Orr dynamic transitions and develops modifications of the non-linear comparativestatic MB&W model to allow for these dynamics.13 Another possibility in smooth-adjustment modeling is to use a transition variable formed as changes of some of the variables determining demand,if not DM then changes in interest rates or changes in income. In this case the characterization of smooth-adjustment as dynamic and the MB&W model as static still applies.…”