Disequilibrium Money: Some Further Results with a Monetary Model of the UK

  • James Davidson
Part of the Studies in Monetary Economics book series (STUDMOECO)


The idea of modelling money as a buffer stock has recently attracted new interest, as papers such as Laidler (1984) and Goodhart (1984) testify, and a number of recent empirical studies are based on the concept. The approach, in some variation, is to embed a term measuring the difference between money held and money desired in one or more equations explaining real or financial adjustments in the economy, and possibly to estimate the parameters of the long-run money demand relation by this indirect route. An early instance was Johnson’s monetary approach to the balance of payments (see Frenkel and Johnson, 1976). Other examples, in addition to the present author’s work (Davidson and Keil, 1982; Davidson, 1984) include Howitt and Laidler (1979), Laidler and O’Shea (1980), Coghlan (1981), Jonson and Trevor (1981), Laidler and Bentley (1983), and Knoester and van Sinderen (1985).


Exchange Rate Money Demand Exchange Rate Regime Buffer Stock Money Stock 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Akerlof, G. (1973) ‘The demand for money: a general-equilibrium inventory-theoretic approach’, Review of Economic Studies, 40: 115–30.CrossRefGoogle Scholar
  2. Amemiya, T. (1977) ‘The maximum likelihood estimator and the nonlinear three-stage least squares estimator in the general nonlinear simultaneous equations model’, Econometrica, 45: 955–78.CrossRefGoogle Scholar
  3. Artis, M. J. and Cuthbertson, K. (1985) ‘The demand for M1: a forward-looking buffer stock model’, National Institute of Economic and Social Research, Discussion Paper, 87.Google Scholar
  4. Artis, M. J. and Lewis, M. K. (1976) ‘The demand for money in the United Kingdom: 1963–73’, Manchester School, 44: 147–82.CrossRefGoogle Scholar
  5. Brainard, W. C. and Tobin, J. (1968) ‘Pitfalls in financial model building’, American Economic Review, 58: 99–122.Google Scholar
  6. Carr, J. and Darby, M. J. (1981) ‘The role of money supply shocks in the short run demand for money’, Journal of Monetary Economics, Vol. 8: 183–200.CrossRefGoogle Scholar
  7. Coghlan, R. (1981) Money, Credit and the Economy (London: Allen & Unwin).Google Scholar
  8. Cooley, T. F. and LeRoy, S. F. (1981) ‘Identification and estimation of money demand’, American Economic Review, 71: 825–44.Google Scholar
  9. Currie, D. (1981) ‘Some long run features of dynamic time series models’, Economic Journal, 91: 704–15.CrossRefGoogle Scholar
  10. Davidson, J. (1983) ‘Error correction systems’, ICERD Econometrics Discussion Paper 83/79, London School of Economics.Google Scholar
  11. Davidson, J. (1984) ‘Money disequilibrium: an approach to modelling monetary phenomena in the U.K.’, ICERD Econometrics Discussion paper 84/96, London School of Economics.Google Scholar
  12. Davidson, J. (1985) ‘Econometric Modelling of the Sterling Effective Exchange Rate’, Review of Economic Studies, 52: 231–50.CrossRefGoogle Scholar
  13. Davidson, J. and Keil, M. (1982) ‘Modelling monetary disequilibrium and the balance of payments in the U.K.’, ICERD, London School of Economics, mimeo.Google Scholar
  14. Frenkel, J. A. and Johnson, H. (eds) (1976) The Monetary Approach to the Balance of Payments (London: Allen & Unwin).Google Scholar
  15. Gallant, A. R. and Jorgenson, D. W. (1979) ‘Statistical inference for a system of simultaneous, nonlinear implicit equations in the context of instrumental variable estimation’, Journal of Econometrics, 11: 275–302.CrossRefGoogle Scholar
  16. Goodhart, C. A. E. (1984) ‘Disequilibrium money — a note’, in Monetary Theory and Practice, the UK Experience (London: Macmillan Press).CrossRefGoogle Scholar
  17. Gordon, R. J. (1984) ‘The short-run demand for money: a reconsideration’, Journal of Money, Credit and Banking, 16: 403–34.CrossRefGoogle Scholar
  18. Granger, C. W. J. (1981) ‘Some properties of time series data and their use in econometric model specification’, Journal of Econometrics, 16: 121–30.CrossRefGoogle Scholar
  19. Granger, C. W. J. and Weiss, A. (1983) ‘Time series analysis of error correction models’, Paper presented to Econometric Society European Meeting, Pisa, September 1983, University of California at San Diego.CrossRefGoogle Scholar
  20. Green, C. J. (1984) ‘Preliminary results from a five-sector flow of funds model of the United Kingdom, 1972–1977’, Economic Modelling, 1: 304–26.CrossRefGoogle Scholar
  21. Howitt, P. and Laidler, D. (1979) ‘Recent Canadian monetary policy — a critique’, in D. Purvis and R. Wirick (eds), Proceedings of Queens University Conference on Economic Policy (Queens University).Google Scholar
  22. Jonson, P. D. and Trevor, R. D. (1981) ‘Monetary rules: a preliminary analysis’, The Economic Record, 57: 150–67.CrossRefGoogle Scholar
  23. Judd, J. and Scadding, T. (1982) ‘The search for a stable money demand function’, Journal of Economic Literature 20: 993–1023.Google Scholar
  24. Knoester, A. and van Sinderen, J. (1985) ‘Money, the balance of payments and economic policy’, Applied Economics, 17: 215–40.CrossRefGoogle Scholar
  25. Laidler, D. (1984) ‘The “buffer stock” notion in monetary economics’, Economic Journal Supplement, 94 — Selected Papers from the RES/ AUTE Annual Conference, 1983: 17–34.Google Scholar
  26. Laidler, D. and Bentley, B. (1983) ‘A small macro-model of the post-war United States’, Manchester School, 51: 317–40.CrossRefGoogle Scholar
  27. Laidler, D. and O’Shea, P. (1980) ‘An empirical macro-model of an open economy under fixed exchange rates: the United Kingdom, 1954–1970’, Economica, 47: 141–58.CrossRefGoogle Scholar
  28. Stock, J. (1984) ‘Asymptotic properties of least squares estimators of cointegrating vectors’ Harvard University, mimeo.Google Scholar
  29. Wills, H. R. (1982) ‘The simple economics of bank regulation’, Economica, 49: 249–59.CrossRefGoogle Scholar

Copyright information

© The Money Study Group 1987

Authors and Affiliations

  • James Davidson

There are no affiliations available

Personalised recommendations