A DYNAMIC ASYMPTOTICALLY IDEAL MODEL OF MONEY DEMAND

We estimate a dynamic asymptotically ideal model of a system of money demand equations. This specification allows incomplete portfolio adjus tment. We base our policy conclusions on Morishima elasticities, becau se as Blackorby and Russell (1989) show, the Allen-Uzawa elasticities can give misleading results. We find that cash assets, savings deposit s, and small time deposits are all substitutes for each other. These r esults imply that monetary authorities should target a relatively broa d monetary aggregate that includes these assets, if policy is to have predictable effects on the economy.