On the demand for money in the United States

One of the current issues in the literature on the demand for money is whether the adjustment of actual to desired money holdings is in real or nominal terms. This paper tests the real against the nominal adjustment hypothesis using United States data. Comparisons are made among simple sum and Divisia aggregates (of M1, M2, M3, and L) and with Spindt's monetary velocity (MQ) aggregate. The results strongly support the nominal adjustment hypothesis, but they do not reveal a single uniformly best monetary aggregate.