Money Demand: The Effects of Inflation and Alternative Adjustment Mechanisms

Abstract

The paper first reconciles a variety of specification tests for partial adjustment money demand models and points out a fundamental identification problem which makes it impossible to distinguish between the real and nominal partial adjustment models if inflation has an independent effect on the long-run demand for money. The paper also finds that empirical estimates of simple partial adjustment models have some undesirable properties and then considers the shortand long-run effects of inflation in a more general distributed lag model.

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