Demand for Money in Singapore 1968–82

Abstract

assets respectively. Theoretically speaking, the holding of money balances should be related to both income and wealth.1 Due to the lack of wealth data, most of the empirical studies use income as the key variable. Milton Fried man introduces the permanent income concept, which is in fact a weighted average of the present and past incomes with gradually reduc ing weights from the present to the long past. It is therefore an income to which a person is accustomed and is a reflection of his wealth. Friedman uses permanent income in his demand for money function. All analysts, in cluding those of the Keynesian School and monetarist school, agree that the income variable is the most important in demand for money functions. The interest variable has been a subject of debate. The Keynesian liquidity preference theory postulates that the demand for money is inversely related to the rate of interest. Empirical studies by post-Keynesian School proponents such as Latane using the narrow definition of money, Mx and long-term rate of interest, seem to support the Keynesian view2 and emphasize the importance of interest rate in the demand functions. The Radcliffe Re