Inflation, Hedging and the Demand for Money: Some Empirical Evidence

Erkki Koskela and Matti Viren

Economic Inquiry, 1987, vol. 25, issue 2, 251-65

Abstract: This paper explores the role of nominal rate of return uncertainty, and inflation hedging as factors explaining the pattern of money de mand. Using U.S. quarterly data over the period 1952II-1982IV, it is shown that in conformity with theoretical considerations the nominal rate of return-uncertainty variable tends to have a significantly pos itive effect and the inflation hedging variable (the covariance betwe en nominal rate of return and inflation rate) a significantly negativ e effect on the demand for money. These findings seem to be reasonabl y robust in terms of various definitions of variables as well as diff erent estimation methods. Copyright 1987 by Oxford University Press.

Date: 1987
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