Money Demand: Theory, Evidence, Results
Abstract
This article critically reviews the economic literature on money demand, stressing empirical results obtained for Chile. The first part of the paper briefly discusses the main analytical approaches to model the demand for money from a historical perspective. Then the role of money is analyzed from the perspective of macroeconomic general-equilibrium theories. This review focuses on five canonical models: money in the utility function, transaction costs, cash in advance, search, and overlapping generations. Finally the paper surveys applied research on money demand, focusing on the empirical counterpart of theoretical models presented in the analytical section (variable selection, specification, and estimation techniques) and the empirical results of 26 studies on money demand in Chile undertaken between 1960 and 2000.
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