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BPEA Article

The Demand for Money Revisited


THE MONEY MARKET IS A CRITICAL COMPONENT of virtually all theories that explain the evolution of aggregate economic activity. More particularly, an accurate understanding and portrayal of this market is essential both to the analysis of past monetary policies and to the formulation of appropriate contemporary policy. This paper focuses on one aspect of the money market, the demand side, and provides an extensive review of the current state of the art concerning the demand for money. The emphasis will be unabashedly empirical, with concentration on the short term, taken here to be quarterly, since this horizon appears to be the most relevant to policy purposes.

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