Smooth-adjustment econometrics and inventory-theoretic money management

Clinton A. Greene

Journal of Economic Dynamics and Control, 2010, vol. 34, issue 6, 1031-1047

Abstract: A growing number of empirical papers use Miller-Orr (S, s) money management as economic motivation for application of non-linear smooth-adjustment models. This paper shows such models are not implied by the Miller-Orr economy. Instead, the Miller-Orr economy implies non-standard smooth-adjustment, as derived in the neglected (and misinterpreted) work of Milbourne et al. (1983). Remarkably, this function includes a varying weight on the lagged dependent variable, capturing static (not dynamic) effects. Interpretations of these apparent dynamics are presented, some of which may be useful in non-monetary (S, s) contexts. Results imply a new agenda for applied smooth-adjustment modeling of money.

Keywords: Money; Miller-Orr; Smooth-adjustment; Nonlinear; Inventory (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:34:y:2010:i:6:p:1031-1047

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