You project is to research and write a ten page paper wherein you estimate the demand for money using regression analysis; regression analysis is explained in chapter 5 and can be done in Excel; no, it is not to estimate why people demand money for a major expenditure; rather, it is to estimate the demand curve for money; or why do people hold their wealth in the form of money (use M1 as your measure of money) rather than another asset that will provide a rate of return higher than the rate on one’s checking account, or cash.
All data for the project can be downloaded into an Excel spreadsheet from the St. Louis Federal Reserve Bank site (Google fred ii to find the site).
Your project is to have the following headings and the following headings only:
II. Literature Review
here you will need to cite at least two scholarly articles
related to estimating the demand for money
here your model should look something like this:
M1 = a + b1interest + b2 time
where a is the intercept estimate, b1 is the coefficient estimate on an interest rate (the interest rate is a proxy for the price of money; or the interest you give up by holding money is the opportunity cost of holding your wealth in the form of money) and b2 is the coefficient estimate on the variable time; time is a proxy for all other things and is to account for the identification problem (see chapter 5), or to acknowledge that Ceteris is not Paribus in the real world. You may want to Google “regression analysis” and read up on it. The model should reflect the demand materials in chapter 3
IV. Results of the Model
here you analyze the results of the regression a la chapter 5.
V. Summary and Conclusions