| Sumario: | The article throws light on the demand for high-powered money in the U.S. The empirical analysis is often circumscribed by lack of data on many of the variables theory suggests can affect the demand for money, such as the interest rates paid on various categories of deposits and the quality or "moneyness" of those deposits. Under some circumstances the omission of these variables can have a serious effect on the stability of conventional deposit-inclusive definitions of money, causing them to be highly imperfect indicators of the effects of money on the overall economy. The solution that the author proposes in these situations is to return to a narrower definition of money, high-powered money alone. The rationale is that since high-powered money is of relatively constant quality over time and space, such specification errors are likely to be less important for high-powered money than for deposit-inclusive totals. The demand for high-powered money should be more stable than the demand for other monetary aggregates.
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