Alternative models of buffer stock money: an empirical investigation

The purpose of this paper is to examine some of the aspects of recent theoretical models of buffer stock money, and to propose an alternative framework which has certain desirable theoretical features. We test the different models on UK data for M1 and show that some empirical support exists for departing from the traditional approach to the modelling of buffer stock money. Furthermore, some additional questions are raised about the empirical modelling of the demand for money as a "buffer asset" which seem to have received little attention in the literature. We begin with a general interaction to the subject of "buffer stock money", proceeding in section two to the derivation of an alternative model of the demand for money. Empirical estimates of the alternative models for the demand form M1 in the United Kingdom are reported in section three. A brief conclusion will then follow