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June/July 1980

Dynamic Forecasting and the Demand for Money

by Scott E. Hein

This paper reexamines the conclusions that have emerged from inadequate dynamic money demand forecasts. First, it presents a conventional money demand relationship and its post-1974 dynamic forecasts, along with a restatement of the conclusions drawn from such an investigation. Next, the dynamic forecasting procedure is contrasted, in general terms, with the more widely understood static forecasting technique. This analysis provides a framework for reevaluating conclusions about the breakdown in the money demand relationship.