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BPEA Article

U. S. Money Demand: Surprising Cross-Sectional Estimates



THE SPECIFICATION of the money demand function has important implications for a number of macroeconomic issues. First, if policymakers are to be responsible for achieving price stability, they need reliable quantitative estimates of money demand. In particular, if the money demand function is stable, the income elasticity yields the rate of money growth that is consistent with long-run price stability.


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