Animal Husbandry Equipment horse stall boxes and horse stable

Animal Husbandry Equipment horse stall boxes and horse stable
 

The stability of a money demand relationship has been a major concern in monetary economics for the last 50 years. It is conventional to call the relationship between real money, a nominal interest rate, and a measure of economic activity a money demand relationship. A stable relationship between these variables helps answer important questions such as the following: What is the average growth rate of money that is consistent with price stability, given the average

growth of the economy and a stable nominal interest rate? Knowledge about the response of money demand to changes in the nominal interest rate may also help

quantify the welfare gains from a low average inflation rate. In an essay in honor of Allan Meltzer, Lucas (1988) reassesses the evidence on the stability of the money demand estimated by Meltzer (1963) and justifies that stability not only on empirical grounds but also on theoretical ones. He shows that there is a theoretical equilibrium relationship between real money, a nominal interest rate as a measure of the opportunity cost of money, and gross domestic product (GDP) as a measure of transactions that is not exactly a money demand, but that is indeed stable. He estimates that equilibrium relationship using the monetary aggregate M1 as the measure of money with data up to 1985 and argues that there is a stable relationship between those variables with a unitary income elasticity and with a strong negative response of real balances to

the nominal interest rate (see box 1 for definitions of the different monetary aggregates).

 
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