 The Monetary ModelsPeijie Wang
Chapter 8 in The Economics of Foreign Exchange and Global Finance, 2020, pp 173-216 from Springer Abstract: Abstract As learned in Chap. 5 , demand for money is a function of real income, the interest rate and the price level. More precisely, the velocity of money, defined as the ratio of demand for money and the price level, is an increasing function of the level of real income and a decreasing function of the level of the interest rate. Reserving these qualitative features, the relationship between these variables in the domestic country can be expressed as follows:where M t D $$ {M}_t^D $$ is demand for money, Pt is the price level, Yt is real income and rt is the interest rate, all at time t, for the domestic country; α > 0 and β > 0 are coefficients representing the income elasticity of money demand, and the interest rate semi-elasticity of money demand. Taking logarithms of Eq. (8.1) yields: where m t d = Ln M t D $$ {m}_t^d= Ln\left({M}_t^D\right) $$ , pt = Ln(Pt), and yt = Ln(Yt). The only differences between Eqs. (5.8) and (8.2) are that demand for money, real income and the price level are in their original forms in the former, while they are in logarithms in the latter. Nevertheless, both Eqs. (5.8) and (8.2) point out that the velocity of money increases with real income and decreases with the interest rate. Date: 2020 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-662-59271-7_8 Ordering information: This item can be ordered from DOI: 10.1007/978-3-662-59271-7_8 Access Statistics for this chapter More chapters in Springer Texts in Business and Economics from Springer |
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