THE DEMAND FOR MONEY AND NON-GDP TRANSACTIONS

This paper argues that transactions in non-GDP items have an important influence on the level of money demand. The paper provides empirical estimates of models of both M1 and M2 money demand that include variables proxying for the volume of transactions in real estate and financial assets. These variables have the theoretically-predicted positive sign, and are statistically significant. Their inclusion also improves out-of-sample forecasts.