Abstract

One of the most important issues in the demand for money function was recently posed by Milton Friedman: Are transactions variables or asset variables most important in determining the demand for money? [2, p. 234]. The conventional procedure has been to assume on an ad hoc basis that the demand for money is either domininated by the asset motive or by the transactions motive, and then to use permanent income or current income, respectively, to represent these motives. l How-

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