Theoretical analysis of the demand of money

Marvin Goodfriend and Bennett McCallum

Economic Review, 1988, vol. 74, issue Jan, 16-24

Abstract: The paper summarizes current mainstream views concerning the theory of money demand. A utility maximizing household chooses to hold money because it facilitates transactions, allowing it to economize on shopping time. Two types of implied money demand functions are derived: a proper demand function with arguments exogenous to the household and a conventional portfolio balance relationship. The historical evolution of ideas pertaining to money demand is reviewed. A final section considers ongoing controversies concerning the role of uncertainty, the use of overlapping generations and cash-in-advance models, and the interpretation of empirical results suggestive of extremely slow portfolio adjustment.

Keywords: Money; Interest rates (search for similar items in EconPapers)
Date: 1988
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Working Paper: Theoretical analysis of the demand for money (1986)
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