Disequilibrium Macroeconomics damental beliefs. One area of reassessment, and my focus, examines the implications of assuming that money is a buffer stock or shock absorber. This hypothesis rejects the assumption that the money ket clears each period in an ex ante sense I link the theoretical notion of money as a buffer stock with the econometric literature on estimating markets in disequilibrium and on cointegration and error-correction modeling. The process of integrating the theory of money as a buffer stock with the esti- mation of markets in disequilibrium generates two problems that need resolution. One, the standard short-side rule of disequilibrium econometrics breaks down; in the money market, the economy al ways holds the money stock and never departs from the money supply. Two, an explicit price of money does not exist. Therefore signals about money-market disequilibria, which come from market price movements in the disequilibrium econometric literature, must flow from other sources. Money-market disequilibria cause adjust ments in the interest rate, real income and the price level. There- fore, the standard disequilibrium econometric specification requires modification to allow adjustments in several variables rather than Consideration of the estimation techniques for markets in dis- equilibrium when applied to the money market generates adjust ment equations that resemble simple error-correction models. New advances in econometrics suggest the examination of cointegration between the determinants of money demand prior to the formu lation of error-correction models. Cointegration analysis has attrac- tive features, since the technique focuses on long-run, trend (eq librium) relationships among economic time series. The literature has long considered the distinction between the long-run and short- run demand for money(for example, Chow 1966), where short-run djustment is important because the economy need not lie on the long-run money demand period-by-period My maintained hypothesis is that the seeming instability in the post-1973 money demand results partly from trend shifts in monetary policy rather than shifting money demand. The move- ment to flexible exchange rates and the redirection of monetary pol icy toward monetary-aggregate targeting has given the monetary au thorities more independence and has made the money stock more exogenous.As a consequence, movements in the money stock lead, rather than follow, money demand, and money- market disequilibria result more from policy action than endogenous economic events My econometric results are consistent with the maintained hyDisequilibrium Macroeconomics damental beliefs. One area of reassessment, and my focus, examines the implications of assuming that money is a buffer stock or shock absorber. This hypothesis rejects the assumption that the money market clears each period in an ex ante sense. I link the theoretical notion of money as a buffer stock with the econometric literature on estimating markets in disequilibrium and on cointegration and error-correction modeling. The process of integrating the theory of money as a buffer stock with the esti￾mation of markets in disequilibrium generates two problems that need resolution. One, the standard short-side rule of disequilibrium econometrics breaks down; in the money market, the economy al￾ways holds the money stock and never departs from the money supply. Two, an explicit price of money does not exist. Therefore, signals about money-market disequilibria, which come from market price movements in the disequilibrium econometric literature, must flow from other sources. Money-market disequilibria cause adjust￾ments in the interest rate, real income, and the price level. There￾fore, the standard disequilibrium econometric specification requires modification to allow adjustments in several variables rather than one unique price. Consideration of the estimation techniques for markets in dis￾equilibrium when applied to the money market generates adjust￾ment equations that resemble simple error-correction models. New advances in econometrics suggest the examination of cointegration between the determinants of money demand prior to the formu￾lation of error-correction models. Cointegration analysis has attrac￾tive features, since the technique focuses on long-run, trend (equi￾librium) relationships among economic time series. The literature has long considered the distinction between the long-run and short￾run demand for money (for example, Chow 1966), where short-run adjustment is important because the economy need not lie on the long-run money demand period-by-period. My maintained hypothesis is that the seeming instability in the post-1973 money demand results partly from trend shifts in monetary policy rather than shifting money demand. The move￾ment to flexible exchange rates and the redirection of monetary pol￾icy toward monetary-aggregate targeting has given the monetary au￾thorities more independence and has made the money stock more “exogenous.” As a consequence, movements in the money stock lead, rather than follow, money demand, and money-market disequilibria result more from policy action than endogenous economic events. My econometric results are consistent with the maintained hy- 581