| Sumario: | Most studies of U.S. money demand have failed to estimate a stable money demand function for the past two decades, but they typically neglect “value of time” as a determinant of money demand. If money saves transaction time, it increases the consumer's leisure time, which is valued at the wage rate. A new study estimated M2 money demand using quarterly data for the period 1963:1-1991:4. Regression results show that wages, as a proxy for the value of time, have a highly significant positive effect on money demand. Moreover, structural stability of the money demand equation requires the inclusion of the wage variable. Without it, the equation is seriously misspecified.
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