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A MODEL OF THE FIRM'S DEMAND FOR MONEY UNDER UNCERTAINTY
Author(s) -
Rozek R. P.,
Wu S. Y.
Publication year - 1979
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.1979.tb00245.x
Subject(s) - economics , ex ante , speculative demand , demand curve , demand for money , profit (economics) , microeconomics , monetary economics , function (biology) , monetary policy , macroeconomics , evolutionary biology , biology
Recently, economists have centered their explanation of the demand for money balances on the transactions motive. The roles of precautionary and speculative motives remain ambiguous. The purpose of this paper is to fill this void. We develop a static model of the individual firm's demand for money in which prices and the interest rate are assumed to be random variables. In this model, the entrepreneur must decide his money holdings ex ante , and both capital and labor inputs are determined ex post . The demand for money corresponding to the various motives is a consequence of analyzing the ex ante profit function. Implications for monetary policy are derived from this analysis.