Buffer-Stock Money: Interpreting Short-Run Dynamics Using Long-Run Restrictions

William Lastrapes () and George Selgin

Journal of Money, Credit and Banking, 1994, vol. 26, issue 1, 34-54

Abstract: Time-series techniques are used to assess the quantitative importance of buffer-stock money--the short-run response of real money holdings to nominal money supply shocks. The empirical model, a vector autoregression of real and nominal money balances, captures general dynamic properties of the time series but requires theoretical restrictions for sensible interpretation. The authors just-identify the system by imposing a long-run neutrality restriction: nominal money shocks have no permanent effects on real money. They find that buffer-stock effects play an important role in the evolution of real M1 in the short-run. The evidence for M2 is less conclusive. Copyright 1994 by Ohio State University Press.

Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:26:y:1994:i:1:p:34-54

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