EXPECTATIONS AND ADJUSTMENTS IN THE MONETARY SECTOR

Edgar L .Feige ()

Macroeconomics from EconWPA

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: E41 E42 C1 C3 D84 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2005-02-01
Note: Type of Document - pdf; pages: 12
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