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A Dynamic Baumol-Tobin Model of Money Demand
Gregor W. Smith
The Review of Economic Studies
Vol. 53, No. 3 (Jul., 1986), pp. 465-469
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2297641
Page Count: 5
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This note considers a stochastic version of the Baumol-Tobin model of the demand for money. A dynamic demand function is derived for the case in which independent variables change to new, steady-state values. The (S,s) inventory policy is shown to give rise to an aggregate, partial-adjustment equation with a variable adjustment speed. The methodology is that introduced to target-threshold models by Milbourne, Buckholtz, and Wasan (1983) in their study of the Miller-Orr model.
The Review of Economic Studies © 1986 The Review of Economic Studies, Ltd.