Abstract
The author finds strong evidence for a buffer stock role for money balances using Irish data. The results obtained are not subject to the criticisms made by MacKinnon and Milbourne (1984) in relation to previous attempts to test the cash balance as shock absorber hypothesis by Laidler (1980) and Carr and Darby (1981). This is for two reasons: firstly, emphasis is laid on the role of the reserve currency country (here the United Kingdom) rather than the small open economy itself (Ireland) as the primary money creator for the latter and, secondly, added to this, the use of an empirical approach which avoids the econometric pitfall dealt with by MacKinnon and Milbourne. Copyright 1989 by Blackwell Publishers Ltd and The Victoria University of Manchester
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