Comment on the Long-Run and Short-Run Demand for Money

In his recent contribution to the theory and empirical analysis of the demand for money, Gregory Chow attempted to reconcile the short- and long-run behavior of the demand for money by "introducing a mechanism for the adjustment of actual money stock to desired stock. . ." (Chow, 1966, p. 111). In this brief comment, we will argue that his formulation of the adjustment equation contains implications that make it difficult to accept and that his empirical evidence does not distinguish the "relative importance of current income as compared with wealth or permanent income" (Chow, 1966, p. Ill), as he claims. Further, we show that when income and prices are not combined in a single variable, nominal income, his more important conclusions about the effect of current income on the demand for money are reversed.