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REPRESENTATIVE ECONOMIC AGENT, PROPENSITIES TO SAVE, AND MONEY DEMAND STABILITY

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6066 Oust Lane, Woodbridge, VA 22193, USA. Tel: +1 301 763 3245; Fax: +1 301 457 3500; Email: jantin4@hotmail.com. The author is indebted to the referees for many valuable suggestions. The views expressed in this study are those of the author and should not be interpreted as those of the Census Bureau or the Commerce Department.

ABSTRACT

In simple-sum aggregate money demand studies, long-run elasticities and the propensities of individuals to save are presumed to be equal and can be depicted by those of the representative economic agent. This study uses panel data to test this hypothesis within the theoretical framework of the inventory-theoretic transactions approach and finds it fails to hold. At the microeconomic level, money demand functions are not homogeneous, and the impacts of monetary policies on economic activities of households are not as stable as those suggested in aggregate money demand studies.

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