Economic and Econometric Concepts

Abstract

Laidler (1999) points the finger at a long standing dilemma when he notes that:

Differences between monetarists and Keynesians on transmission is­sues were about where it was most fruitful to simplify the basic framework in order to bring it into contact with empirical evidence, not about fundamental questions of monetary policy. (op. cit. p. xvi)

To overcome some of the unavoidable frictions between economic considera­tions and econometric tools this chapter tries to establish some links between what economic theory suggests and what econometric methods are able to confirm. The point of departure is a mainly technical one, however. There­fore, no particular money demand theory serves as a null hypothesis, although the approaches can be traced back to Meltzer (1963) who primarily considered monetarist views. Likewise, the concept of money itself will be treated as a technical issue.