Abstract
The lagged partial-adjusment money-demand function has been studied theoretically and empirically for the aggregate economy. This paper focuses on a sectoral analysis of two partial-adjustment functions: one for optimal money demand and another for optimal loans demand. The two partial-adjustment equations are derived employing a representive-firm approach. A dynamic factor-demand model with internal costs of adjustment is utilized to generate Euler equations for the demand for money and short-term business loans. These Euler equations parallel the aggregate partial-adjustment money-demand equations typically employed in applied monetary research. The significant difference between the ad hocderivation and the microtheoretic derivation employed here, is that desired money and loan holdings are found by solving the Euler equations. These particular definition of desired money and loan holding are model consistent and depend upon the predetermined and exogeneous variables of the model. Empirical analysis ge...
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