Abstract
In a recent article in this Journal, Alan Hess [8] attempts to explain short-run fluctuations in the public's desired currency-demand deposit ratio, hereafter denoted by C/D. Since statistical analyses of the C/D are few, this research by Hess is a welcome contribution. His analysis, however, is predicated upon an unproductive assumption which leads him to ignore an important determinant of the C/ D the storage costs of demand deposits . It is my purpose in this note to omit the assumption and to thereby supplement his analysis. This will be accomplished by introducing into Hess's theoretical model the out-of-pocket costs incurred in holding demand deposits which are not also incurred in the holding of currency, and by modifying his empirical analysis to include consideration of this variable.
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