Stephen M. Miller buffer stock to monetary analysis is well developed and simple, and it has already withstood a good deal of empirical testing"(32).2 Most econt ric analyses of money demand recognize, at least implicitly, the possibility of disequilibrium. The standard stock (supply) -adjustment model (Chow 1966 and Goldfeld 1973)differ ntiates between short- and long- run demands. But this specifica- tion possesses some peculiarities if the money supply is exogenous (Walters 1965; Starleaf 1970; Artis and Lewis 1976; Laidler 1980 Carr and Darby 1981; Coats 1982; and Andersen 1985 For ex- ample, a change in the money supply requires that the interest rate, real income, and the pi level overshoot their long-run val les in the short run (Starleaf 1970 provides extensive discussion ). Judd and Scadding(1982b)compare supply- and demand-adjustin specifications, concluding that the demand-adjusting models out perform the supply-adjusting models, both for within-sample fit(that is, 1959: i to 1974: i)and for out-of-sample forecasting (that is, 1974: ii Judd and Scadding(1982b)note that even for the best-per forming equation(that is, Coats 1982 ), the out-of-sample simulation encounters the well-known shift in the demand for money in (28). Post-1973 econometric analysis of money de mand also suggests implausibly slow speeds of adjustment udd and Scadding 1982a). The emergence of high levels of autocorrelation and seeming parameter instability in the post-1973 period causes some researchers to search for model misspecifications(for example Gordon 1984 and Rose 1985). A popular explanation states that money lemand shifted down between 1974 and 1976 and again between 1979 and 1981 because of financial innovation (udd and Scadding 1982a). More recently, explanations state that money demand shifted up between 1982 and 1983(Gordon 1984; Hetzel 1984; and Miller 1986)and again between 1985 and 1986(Miller 1989)because of financial deregulation I propose a tentative alternative hypothesis to explain po 1973 events: much of the shifting of money demand reflects shifts in money supply (that is, a shift in monetary policy in the sense of Poole 1975)rather than money demand. Significant decelerations aSome authors(White 1981)question the buffer-stock approach to money,ar- guing that since money is, by definition, the most liquid and flexible asset, a dis- ey market is untenable. Such criticism, by a Examining seven industrial countries, OECD(1984)finds that the adoption of money-stock targeting associates with money demand shiftsStephen M. Miller buffer stock to monetary analysis is well developed and simple, and it has already withstood a good deal of empirical testing” (32).’ Most econometric analyses of money demand recognize, at least implicitly, the possibility of disequilibrium. The standard stock (supply)-adjustment model (Chow 1966 and Goldfeld 1973) differ￾entiates between short- and long-run demands. But this specifica￾tion possesses some peculiarities if the money supply is exogenous (Walters 1965; Starleaf 1970; Artis and Lewis 1976; Laidler 1980; Carr and Darby 1981; Coats 1982; and Andersen 1985). For ex￾ample, a change in the money supply requires that the interest rate, real income, and the price level overshoot their long-run val￾ues in the short run (Starleaf 1970 provides extensive discussion). Judd and Scadding (1982b) compare supply- and demand-adjusting specifications, concluding that the demand-adjusting models out￾perform the supply-adjusting models, both for within-sample fit (that is, I959:i to I974:ii) and for out-of-sample forecasting (that is, 1974:iii to 1980:iu). Judd and Scadding (198213) note that even for the best-per￾forming equation (that is, Coats 1982), the out-of-sample simulation encounters the “. . . well-known shift in the demand for money in 1975-76 . . .” (28). Post-1973 econometric analysis of money de￾mand also suggests implausibly slow speeds of adjustment (Judd and Scadding 1982a). The emergence of high levels of autocorrelation and seeming parameter instability in the post-1973 period causes some researchers to search for model misspecifications (for example, Gordon 1984 and Rose 1985). A popular explanation states that money demand shifted down between I974 and 1976 and again between 1979 and 1981 because of financial innovation (Judd and Scadding 1982a). More recently, explanations state that money demand shifted up between 1982 and 1983 (Gordon 1984; Hetzel 1984; and Miller 1986) and again between 1985 and 1986 (Miller 1989) because of financial deregulation. I propose a tentative alternative hypothesis to explain post- 1973 events: much of the shifting of money demand reflects shifts in money supply (that is, a shift in monetary policy in the sense of Poole 1975) rather than money demand.3 Significant decelerations ‘Some authors (White 1981) question the buffer-stock approach to money, ar￾guing that since money is, by definition, the most liquid and flexible asset, a dis￾equilibrium in the money market is untenable. Such criticism, by its nature, must question the modeling of the short-run money demand as well. 3Examining seven industrial countries, OECD (19&t) finds that the adoption of money-stock targeting associates with money demand shifts. 564