The Demand for Money: A Cross-Section Study of Business Firms

Interest in the short-run behavior of the demand for money has been stimulated in recent years notably by the studies of Professors Baumol, Tobin, and Friedman.1 Three issues which have been reopened by their studies will be discussed here. First, what factors influence the demand for money and changes in cash balances over short periods of time? Second, what is the role of interest rates in these short-term changes? Third, are there economies of scale in the holding of money balances? These questions are of some relevance for monetary theory and for discussions of the impact and utility of discretionary monetary policy.