Abstract
In this paper we re-examine the theoretical foundations and empirical estimation of models which incorporate a CES utility function to study the nearness of money substitutes. We show that previous studies using these models have been subject to a number of theoretical and empirical flaws. The result of these flaws has been to overestimate the degree of substitutability between money and near money assets. We show that when these errors are corrected, estimates of substitution elasticities are several times smaller than even those of the most recent studies and therefore are more in line with estimates from more traditional demand for money studies.
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