The Demand Curve for Money Further Considered

The convention in economics is to assume that what is termed the money stock—currency plus checkable deposits—is a variable which is exogenously controlled by the monetary authorities. This assumption makes it possible to assert that a change in one or more economic variables, including the short-term interest rate, influences the “demand” for money. It is on this basis that a demand curve for money is usually specified and, if the study is an empirical one, the parameters of that money-demand equation estimated.