Demand for money, interest rates and income taxation

Abstract

One of the central problems of modern monetary theory is the determination of of how much money people will choose to hold under alternative situations. The present work argues that the empirical work that has thus far tried to establish a relationship between the demand for money and the rate of interest has not used a truly relevant rate. It is shown that, when the proper modifications are made, there appears to be a somewhat higher statistical relationship between variables and thus the interest elasticity of the demand for money becomes greater. The author first discusses the general hypothesis to be tested empirically before presenting the data to be tested. Results of the test are then presented and some conclusions are dawn. JEL: E41, E43, H24

Keywords

• Monetary theory
• demand for money
• rate of interest
• taxation