NOMINAL COSTS AND THE DEMAND FOR REAL TRANSACTIONS BALANCES |
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| Authors: | JAMES L SWOFFORD GERALD A WHITNEY |
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| Institution: | *Assistant Professor, Department of Economics, University of South Alabama;**Associate Professor, Department of Economics, University of New Orleans. The authors wish to thank William Bomberger, David Cushman, Michael Johnson, Nick Mercuro and two anonymous referees for helpful comments. Of course the usual caveat applies. |
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| Abstract: | The standard specification of constant real transactions costs assumes that over the sample period transactions costs move in lock-step with the GNP deflator; our model assumes that transactions costs move negligibly compared to the GNP deflator. That is, nominal transactions costs are assumed constant here rather than real transactions costs as in other estimates of money demand. We find with this nominal-transactions-cost specification that the real money demand function is more stable in terms of the stability of the coefficients and the accuracy of out of sample predictions than indicated by earlier studies. |
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