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November/December 1991, 
Vol. 73, No. 6
Posted 1991-11-01

A Microeconomic Approach to Estimating Demand: The Asymptotically Ideal Model

by Piyu Yue

Piyu Yue presents an advanced approach to estimating money demand called the “Asymptotically Ideal Model” or AIM. She briefly reviews alternative microeconometric approaches to money demand, then estimates the AIM using U.S. quarterly monetary aggregate data. Dynamic simulations of the growth rate of the various aggregates and consumption suggest that the model performs well. Among other things, she concludes that the failure of conventional money demand equations may result from the inability of linear equations to approximate the behavior of nonlinear demand functions.