Track: Entrepreneurship and Innovation

Abstract

With the recent inflationary experience in the United States, and the rise in interest rates in the economy, the role of money demand, and the stability of money demand, have both come into sharp focus. This paper studies the factors that affect aggregate demand for money, using quarterly time series data for the United States.  We pay special attention to income, interest rate and inflation effects on money demand.  We also examine the impacts of government debt, demographic factors, and financial innovation on the money demand function.  For robustness purposes, the study utilizes different money measures, and also controls for the pandemic time period.  The modelling techniques address issues of unit roots and cointegration, and error-correction methods.  Our paper further derives long-term elasticity and semi-elasticity estimates.  We conclude with policy recommendations, and the implications for business management and entrepreneurship.