02375cam a22002297 4500001000600000003000500006005001700011008004100028100002200069245009900091260006600190490004100256500001700297520147100314530006101785538007201846538003601918710004201954830007601996856003702072856003602109w1421NBER20150126060428.0150126s1984 mau||||fs|||| 000 0 eng d1 aGordon, Robert J.14aThe Short-Run Demand for Moneyh[electronic resource]:bA Reconsideration /cRobert J. Gordon. aCambridge, Mass.bNational Bureau of Economic Researchc1984.1 aNBER working paper seriesvno. w1421 aAugust 1984.3 aThe partial-adjustment approach to the specification of the short-run demand for money has dominated the literature for more than a decade. There are three basic problems with this approach. First, the same lag structure is imposed on all variables, and each independent variable enters only as a current value. In contrast a rational individual would respond to different variables (income, interest rates, prices) with quite different lags. Second, when the general price levelis subject to gradual adjustment hut can move quickly in response to supply shocks, the influence of these supply shocks should enter with a negative sign. Third, the estimated equation for real balances may not be a money demand equation at all, but rather its coefficients may represent a shifting mixture of demand and supply responses.The empirical work examines several alternative dynamic specifications, including a generalized partial adjustment framework and the error-correction model. Both of the latter specifications exhibit greater structural stability after 1973 than the standard partial adjustment specification, and the generalized partial adjustment model also yields relatively small errors in post-sample dynamic simulations. Shifts in coefficients as the sample period is extended after 1973 are consistent with the interpretation that the real balance equation no longer traces out structural demand parameters, hut rather a mixture of demand and supply responses. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w1421.4 uhttp://www.nber.org/papers/w142141uhttp://dx.doi.org/10.3386/w1421