Functional Form in the Demand for Money
- 1 June 1968
- journal article
- research article
- Published by Taylor & Francis in Journal of the American Statistical Association
- Vol. 63 (322) , 502-511
- https://doi.org/10.1080/01621459.1968.11009269
Abstract
A general functional form is considered for which the linear and logarithmic functional forms are special cases. The general functional form is a power transformation of each of the variables—each variable is raised to a λ power. This functional form is estimated for the demand for money using the maximum likelihood method. Real money demand is specified to be a function of real current income and a short-term interest rate. The empirical evidence suggests that the logarithmic functional form is appropriate for money stock defined as currency plus demand deposits. For money stock defined to also include time deposits, neither the linear nor logarithmic form seems appropriate. The estimates of λ are insensitive to expansion of the model explaining money demand, but functional form is important for discrimination among alternative hypotheses.Keywords
This publication has 9 references indexed in Scilit:
- On the Long-Run and Short-Run Demand for MoneyJournal of Political Economy, 1966
- Use of the Durbin-Watson Statistic in Inappropriate SituationsEconometrica, 1966
- Further Analysis of the Short-Run Consumption Function with Emphasis on the Role of Liquid AssetsEconometrica, 1965
- An Analysis of TransformationsJournal of the Royal Statistical Society Series B: Statistical Methodology, 1964
- Another Look at Liquidity PreferenceEconometrica, 1963
- Capital-Labor Substitution and Economic EfficiencyThe Review of Economics and Statistics, 1961
- Aggregation over Time in Distributed Lag ModelsInternational Economic Review, 1961
- The Demand for Money: Some Theoretical and Empirical ResultsJournal of Political Economy, 1959
- Cash Balances and the Interest Rate--A Pragmatic ApproachThe Review of Economics and Statistics, 1954