A Dynamic Baumol-Tobin Model of Money Demand

Gregor Smith

The Review of Economic Studies, 1986, vol. 53, issue 3, 465-469

Abstract: This note considers a stochastic version of the Baumol-Tobin model of the demand for money. A dynamic demand function is derived for the case in which independent variables change to new, steady-state values. The (S, s) inventory policy is shown to give rise to an aggregate, partial-adjustment equation with a variable adjustment speed. The methodology is that introduced to target-threshold models by Milbourne, Buckholtz, and Wasan (1983) in their study of the Miller-Orr model.

Date: 1986
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