Klein's Price Variability Terms in the U.S. Demand for Money: A Note

UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
Stuart D. Allen, Professor (Creator)
The University of North Carolina at Greensboro (UNCG )
Web Site: http://library.uncg.edu/

Abstract: One recent innovation in the empirical work on the demand for money has been the inclusion of a measure of the past or future variability of the inflation rate or the interest rate.1 One particularly unique empirical and theoretical treatment is developed by Klein [12] who reports a positive and significant effect on the U.S. demand for money by a price uncertainty variable, S( /P), which allegedly measures the quality of cash balances. These results substantiate his theoretical development that an increase in the uncertainty of the inflation rate lowers the quality of the services from a stock of money which thereby increases the demand for money. The S( /P) term represents a measure of the past variability of the rate of change of prices and is analogous to an adaptive expectations term for the rate of inflation.2

Additional Information

Journal of Money, Credit and Banking, November 1982, 14(4) Part I, 525-530.
Language: English
Date: 1982
Money, Demand for money, Klein, Variability, Economics, Analysis

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