On the Sluggish Response of Prices to Money in an Inventory-Theoretic Model of Money Demand

Fernando Alvarez, Andrew Atkeson and Chris Edmond

No 10016, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We exposit the link between money, velocity and prices in an inventory-theoretic model of the demand for money and explore the extent to which such a model can account for the short-run volatility of velocity, the negative correlation of velocity and the ratio of money to consumption, and the resulting stickiness' of the aggregate price level relative to a benchmark model with constant velocity. We find that an inventory-theoretic model of the demand for money is a natural framework for understanding these aspects of the dynamics of money, velocity and prices in the short run.

JEL-codes: E4 (search for similar items in EconPapers)
Date: 2003-10
New Economics Papers: this item is included in nep-mac and nep-mon
Note: ME
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Citations: View citations in EconPapers (43)

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