Disequilibrium Macroeconomic he tradition of Starleaf (1970), Artis and Lewis(1976), and Coats(1982). Cordon(1984)states that two major problems face monetary economists-the large coefficients of lagged money and the high autocorrelations in post-1973 samples. Lagged money was originally introduced to account for sluggish portfolio adjustment(Chow 1966) but the post- 1973 coefficients of lagged money suggest implausibly slow speeds of portfolio adjustment. Further, high autocorrelation may indicate model misspecification The existing literature has several things to say about these two issues. Goodfriend(1985)argues that the money market can lear each period and that lagged money does not belong theoret ically in money demand. Measurement errors in the exogenous variables can explain the significance of the coefficient of lagged money and the high autocorrelation. Laidler(1985)and Gordon(1984) argue that money demand regression equations represent semi-re duced-form equations. That is, the parameters of the money de- mand regressions combine the parameters from the money demand and other equations of the macroeconomy offer a competing explanation for these problems hased on Equations(1),(7),(7a), and (9 ). The post-1973 money market ex perienced significant disequilibrium. But the dynamic adjustment is of the demand-, rather than the supply-, adjusting type. Equation (9)shows how my formulation of money-market adjustment con- forms with the demand-adjusting view. Now, a well-behaved (that is, white-noise)error structure in Equation(1) implies a well-be- haved error structure in Equations (7)and(7a)but a moving-at erage error structure with a unit root in Equation(9). If, alterna tively, the partial-adjustment equation possesses a well-behaved error structure,then Equations (1),(7), and(7a) exhibit autocorrelated Equations(7a)and(9) are comparable to Starleaf's (1970, 751-52) Equations (3.4)and (3.5)after several adjustments. First, Starleaf assumes that the adjustment quation(that is, [3. 4]does not involve a random error. Equation( 9)includes a gn. seco mand for money and the demand-adjustment equation are in real terms. Thus, the price terms appearing in Equation(7a)disappear in Starleaf's specification. Thir Starleaf assumes that this periods demand for money adjusts to the differe tween this period's money supply and last period's money demand. Equation (9) has last periods money supply instead of this period s. Starleaf's adjustment eq tion results when Equation (3a) is adopted rather than Equation(3b)as the dis equilihrium adjustment specification. Finally, to derive Starleaf s quation(3.5)from Equation (7a), assume that n2=a 1=a2p2iDisequilibrium Macroeconomics mulation in the tradition of Starleaf (1970), Artis and Lewis (1976), and Coats (1982).’ Gordon (1984) states that two major problems face monetary economists-the large coefficients of lagged money and the high autocorrelations in post-1978 samples. Lagged money was originally introduced to account for sluggish portfolio adjustment (Chow 1966); but the post-1973 coefficients of lagged money suggest implausibly slow speeds of portfolio adjustment. Further, high autocorrelation may indicate model misspecification. The existing literature has several things to say about these two issues. Goodfriend (1985) argues that the money market can clear each period and that lagged money does not belong theoret￾ically in money demand. Measurement errors in the exogenous variables can explain the significance of the coefficient of lagged money and the high autocorrelation. Laidler (1985) and Gordon (1984) argue that money demand regression equations represent semi-re￾duced-form equations. That is, the parameters of the money de￾mand regressions combine the parameters from the money demand and other equations of the macroeconomy. I offer a competing explanation for these problems based on Equations (l), (7), (7a), and (9). The post-1973 money market ex￾perienced significant disequilibrium. But the dynamic adjustment is of the demand-, rather than the supply-, adjusting type. Equation (9) shows how my formulation of money-market adjustment con￾forms with the demand-adjusting view. Now, a well-behaved (that is, white-noise) error structure in Equation (1) implies a well-be￾haved error structure in Equations (7) and (7a) but a moving-av￾erage error structure with a unit root in Equation (9). If, alterna￾tively, the partial-adjustment equation possesses a well-behaved error structure, then Equations (l), (7), and (7a) exhibit autocorrelated ‘Equations (7a) and (9) are comparable to Starleaf’s (1970, 751-52) Equations (3.4) and (3.5) after several adjustments. First, Starleaf assumes that the adjustment equation (that is, [3.4]) does not involve a random error. Equation (9) includes a random error due to different model design. Second, Starleaf assumes that the de￾mand for money and the demand-adjustment equation are in real terms. Thus, the price terms appearing in Equation (7a) disappear in Starleaf’s specification. Third, Starleaf assumes that this periods demand for money adjusts to the difference be￾tween this periods money supply and last period’s money demand. Equation (9) has last periods money supply instead of this periods. Starleaf’s adjustment equa￾tion results when Equation (3a) is adopted rather than Equation (3b) as the dis￾equilibrium adjustment specifkation. Finally, to derive Starleaf’s Equation (3.5) from Equation (7a), assume that n = a,@, = up&I. 569