Inflation, hedging and the demand for money : Some empirical evidence

This paper examines the impact of nominal interest rate uncertainty and inflation hedging on the demand for money by using U.S. quarterly data over the period 1952.2-1982.4. It is shown that in conformity with theoretical considerations the interest rate uncertainty variable has a significant positive, while the inflation hedging variable (covariance between interest rate and inflation rate) has a significant negative effect on the demand for money. This results seems to be reasonably robust with respect to various defitions of income, interest rate, inflation rate and money variables as well as estimation methods.