REPRESENTATIVE ECONOMIC AGENT,PROPENSITIES TO SAVE,AND MONEY DEMAND STABILITY

In simple‐sum aggregate money demand studies, long‐run elasticities and the propensities of individuals to save are presumed to be equal and can be depicted by those of the representative economic agent. This study uses panel data to test this hypothesis within the theoretical framework of the inventory‐theoretic transactions approach and finds it fails to hold. At the microeconomic level, money demand functions are not homogeneous, and the impacts of monetary policies on economic activities of households are not as stable as those suggested in aggregate money demand studies.