| Sumario: | This article presents a reply by the author in response to the comment made by scholar Kevin Clinton. Clinton has provided an interesting counterexample to the verbal argument that the omission of cross-adjustment coefficients necessarily misspecifies the system of asset adjustment proposed by economists William Brainard and James Tobin. However, Clinton's specification is not a counterexample to any of the formal propositions developed in the paper. As Clinton observes in a footnote, the author dealt with two alternative sets of sufficient conditions for consistency of that system. He has presented a third alternative. All three of these alternatives are special cases of the complete set of necessary and sufficient conditions for consistency. The author did not develop these latter conditions in my paper since, at the time he wrote it, the author did not recognize their economic interpretation. This interpretation can now be provided. He therefore welcome the opportunity to develop the complete set of conditions.
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