U.S. Money Demand: Surprising Cross-Sectional Estimates
Casey B. Mulligan and Xavier X. Sala-i-Martin
Brookings Papers on Economic Activity, 2:1992, 285-343
We estimate money demand functions using cross-sections of U.S. states
over the period 1929-1990. We arrive at a number of interesting
conclusions. First, our estimates of the income elasticity lie between 1.3
and 1.5, significantly above one. We are unable to attribute this result to
geographical differences in financial sophistication or banking laws.
Second, money demand is a stable function over an impressive sample period,
1929-1990. Third, income per capita is a better scale variable than
consumption. Finally, we find that during some time periods, agricultural
regions have demanded more money than would be predicted given their income.