EXPECTATIONS AND ADJUSTMENTS IN THE MONETARY SECTOR

Edgar Feige

Macroeconomics from University Library of Munich, Germany

Abstract: This paper examines the problem of appropriately specifying and estimating the money demand function in the presence of adaptive expectations and partial adjustment mechanisms. The paper demonstrates the difficulty of interpreting distributed lag reduced form representations of the monetary sector when both expectation and adjustment mechanisms are present. It finally presents and empirically estimates an identified model of the monetary sector with partial adjustment mechanisms and multiple expectation formation mechanisms and finds that the elasticity of adjustment appears to be unity, and the adaptive expectation elasticity of income conforms to that proposed by Friedman’s permanent income hypothesis. Reference: American Economic Review, Vol. LVII, No. 2 May, 1967, pp. 462-473.

Keywords: money demand; expectations; adjustments; distributed lags; identification; adaptive expectations; pasrtial adjustments; permanent income. (search for similar items in EconPapers)
JEL-codes: C1 C3 D84 E41 E42 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2005-02-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: Type of Document - pdf; pages: 12
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0502005

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