The NOW account experiment and the demand for money |
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Authors: | Joanna H Frodin Richard Startz |
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Institution: | Federal Reserve Bank of Philadelphia, Philadelphia, PA 19105, USA;University of Pennsylvania, Philadelphia, PA 19104, USA |
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Abstract: | The authors use the NOW account experience in New England from 1972 to 1978 to estimate the responsiveness of the demand for money to interest payments on checkable accounts. Such an estimate is important in considering the effects on the demand for money of nationwide NOW's and of variations in interest rates on transactions balances in the future. With New England as the experimental region and the rest of the United States as a control group, the authors develop a cross-section, time-series framework to isolate and to estimate the interest rate responsiveness of money demand while accounting for effects of income, interest rates, and gradual adjustment. |
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