| Sumario: | The article discusses competitive interest payments on bank deposits and the long-run demand for money. It tests two assumptions made in previous demand for money studies. The first assumption concerns the role assigned to "the" interest rate in the demand for money function. Common practice identifies the rate of interest with "the opportunity cost of holding money." In Section I of the article, this formulation is shown to blur an important distinction between "the price of money" and "the price of money substitutes" and to implicitly assume that the relevant price variable is the difference between these two distinct prices. The second assumption is that the current ban on interest payments on demand deposits is fully effective. In Section II of the article, price variables are defined and perfectly competitive interest payments on commercial bank deposits are estimated. This is done by crudely measuring commercial bank marginal costs and assuming that all "excess" profit is passed on to depositors in indirect ways.
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