TY  - JOUR
AU  - McCallum,Bennett T.
AU  - Goodfriend,Marvin S.
TI  - Money:  Theoretical Analysis of the Demand for Money
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2157
PY  - 1987
Y2  - 1987
UR  - http://www.nber.org/papers/w2157
L1  - http://www.nber.org/papers/w2157.pdf
N1  - Author contact info:
Bennett T. McCallum
Tepper School of Business, Posner 256
Carnegie Mellon University
Pittsburgh, PA 15213
Tel: 412/268-2347
Fax: 412/268-6830
E-Mail: bm05@andrew.cmu.edu

Marvin Goodfriend
Tepper School of Business
Carnegie Mellon University
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
Tel: 412/268-8459
Fax: 412/268-6830
E-Mail: marvingd@andrew.cmu.edu
AB  - This paper, prepared for the New Palgrave, attempts to summarize current mainstream views concerning the theory of money demand. A model is sketched in which a representative household is depicted as seeking to maximize utility over an infinite planting horizon, with each period's consumption and leisure appearing as arguments of the utility function. The household chooses to hold non-interest-bearing money, even in the presence of assets with positive pecuniary yields, because it facilitates transactions and thereby reduces the amount of time and/or energy required in the process of "shopping', i.e., acquiring goods to be consumed. Two distinct types of implied money-demand functions are derived: a "proper" demand function with arguments exogenous to the household and a portfolio balance relationship that is more similar in specification to the type of equation that normally appears in the money-demand literature. One section of the paper briefly reviews the historical evolution of ideas pertaining to money-demand theory, and suggests that major contributors have included Marshall, Hicks, and Sidrawki. A final section considers ongoing controversies concerning the role of uncertainty, the use of overlapping-generation and cash-in-advance approaches, and the interpretation of empirical results apparently suggestive of extremely slow portfolio adjustments.
ER  -