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Money Demand and Income Distribution: Evidence from Annual Data

James Cover and Donald L Hooks

The Review of Economics and Statistics, 1993, vol. 75, issue 3, 520-23

Abstract: Transactions (and precautionary) theories of money demand imply that the more unequal the distribution of income (or transactions), the lower the demand for money. This paper presents evidence that contradicts this implication of transactions theories of money demand. Using annual U.S. data, it is found that as income becomes more unequally distributed, the demand for money increases rather than decreases. The result is found to be robust to a variety of distribution measures and money-demand specifications. Copyright 1993 by MIT Press.

Date: 1993
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