Journal Article

Modeling the effects of inflation on the demand for money

Abstract: Because the Federal Reserve is responsible for controlling the value of money, economic policymakers are very concerned with forecasting the public's demand for money. Inflation is one of several factors that have made forecasting the demand for money increasingly difficult over the past fifteen years. In this article, Kenneth M. Emery reviews the ways that inflation may affect the demand for money, and he examines how well traditional money-demand models have captured these effects in the postwar period. ; Emery finds that money-demand models would have performed better during 1953-79 had they included the direct effects of inflation. However, he also finds some evidence that the wide use of interest-bearing money and moderate rates of inflation during the 1980s diminished the effects of inflation on the demand for money.

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Economic and Financial Policy Review

Publication Date: 1991

Issue: Mar

Pages: 17-29