The Demand for Money: Theoretical and Empirical Approaches

The Demand for Money: Theoretical and Empirical Approaches provides an account of the existing literature on the demand for money. It shows how the money demand function fits into static and dynamic macroeconomic analyses and discusses the problem of the definition (aggregation) of money. In doing so, it shows how the successful use in recent years of the simple representative consumer paradigm in monetary economics has opened the door to the succeeding introduction into monetary economics of the entire microfoundations, aggregation theory, and micro-econometrics literatures.
It also compares and contrasts the theoretical and empirical aspects of the microeconomic- and aggregation-theoretic approach to the demand for money to those of other paradigms, presents empirical evidence using state-of-the-art econometric methodology, and recognizes the existence of unsolved problems and the need for further developments. Finally, it suggests answers to a number of problems raised over previous studies of the demand for money. Most important is the idea that traditional measures of money and log-linear money demand functions are inappropriate in the recent volatile financial environment.