Review

Daniel L. Thornton discusses the theoretical links between the Federal Reserve’s discount rate and market interest rates and presents some empirical evidence on the extent of this link. He finds that, both in theory and practice, the direct relationship between the discount rate and money market rates is extremely weak.

Salam K. Fayyad describes how the microeconomic system-wide approach to money demand differs from the usual money demand specifications. Using a neoclassical utility function defined over five expenditure categories, two of which are presumed to capture the flow of “monetary services,” he demonstrates how the microeconomic system-wide approach can be implemented.