The Role of Money Supply Shocks in the Short-Run Demand for Money

Jack Carr and Michael Darby ()

No 524, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Previous models of the demand for money are either inconsistent with contemporaneous adjustment of the price level to expected changes in the nominal money supply or imply implausible fluctuations in interest rates in response to unexpected changes in the nominal money supply. This paper proposes a shock-absorber model of money demand in which money supply shocks affect the synchronization of purchases and sales of assets and so engender a temporary desire to hold more or less money than would otherwise be the case. Expected changes in nominal money do not cause fluctuations in real money inventories. The model is simultaneously estimated for the United States, United Kingdom, Canada, France, Germany, Italy, Japan, and the Netherlands using the postwar quarterly data set and instruments used in the Mark III International Transmission Model. The shock-absorber variables significantly improve the estimated short-run money demand functions in every case.

Date: 1980-07
Note: ITI IFM
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Published as Carr, Jack and Darby, Michael R. "The Role of Money Supply Shocks in the Short-Run Demand for Money." Journal of Monetary Economics, Vol. 8, No. 2, (September 1981), pp. 183-199.

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Related works:
Journal Article: The role of money supply shocks in the short-run demand for money (1981)
Working Paper: The Role of Money Supply Shocks in the Short-Run Demand for Money (1977)
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