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The Demand for M1: A Forward Looking Buffer Stock Model

K. Cuthbertson
Oxford Economic Papers
New Series, Vol. 40, No. 1 (Mar., 1988), pp. 110-131
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2663256
Page Count: 22
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The Demand for M1: A Forward Looking Buffer Stock Model
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Abstract

A FORWARD looking model of the demand for M1 based on minimizing multi- period quadratic costs is derived. The dynamic response of the demand for money differs depending on whether shocks are anticipated or unanticipated. The restrictions implicit in the forward model are tested and the model is compared with a conventional ADL backward looking model.

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