Corporate money demand and the missing inflation

Lei Wang

Applied Economics Letters, 2024, vol. 31, issue 14, 1340-1343

Abstract: This article hypothesizes that firms demand more money to maintain low and stable inventory in order to fully exploit the globalization of supply chains. Three test implications derived from the hypothesis are verified with the US data: that the ratio of money held by firms over M1 trends up and becomes more volatile, that the ratio would plunge if there is a tremendous shock to supply chains, and that the ratio positively impacts real money balance in the long run cointegrated equilibrium with real income and short-term interest rate as control variables. Elevated money demand from the firm sector could partially explain the missing inflation in the 2010s.

Date: 2024
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DOI: 10.1080/13504851.2023.2186351

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