Monetary Anticipations and the Demand for Money

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Abstract
It has been recently argued that unanticipated changes in nominal money supply affect real money demand, and empirical results appear to support this hypothesis. Unfortunately, the econometric techniques used yield severely biased and inconsistent estimates. This paper shows how valid estimates can be obtained and presents results using U.S. data which do not support the conclusions of earlier authors. We find that unanticipated money supply changes affect real money demand, but with the wrong sign, and that anticipated changes has no effect. A consistency test for all models employing the anticipated-unanticipated distinction is also proposed.
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