Hi circlezane,
Fisher: The Quantity Theory of Money
This theory is based on an identity called "equation of exchange":
M*V=P*Y (where M is the quantity of money, V is the velocity of money,
P is the price level and Y is the real income level). Fisher thought
the velocity (V) of money was fixed in the short run; it only changed
very slowly over time as it was affected by institutions and
technology. Rearranging the equation, we get that M=(P*Y)/V. Assuming
equilibrium, the quantity of money (M) should be equal to the demand
for money. Therefore, according to Fisher, the nominal demand for
money would only depend in the short run on the price level and on the
nominal income level. Thus, unlike the following theories, this one
assumes that demand for money is not affected by interest rates.
Keynes: Liquidity Preference Framework
Keynes thought there were three reasons for holding money:
transactions, precautionary savings and speculative reasons. The
"transacations" part of the demand for money depended on the income
level, as people would buy more things as income rises. The
"precautionary" part of the demand for money would also depend
positively on the income level, as it would depend on the unexpected
transactions that need to be done. Finally, the "speculative" part of
the demand for money came from the decision individuals made regarding
whether to hold their wealth in money or bonds (Keynes assumed people
would hold their wealth only in one of these two assets). When
interest rates were high, people would store their wealth in bonds;
but when they were low they hold money instead of bonds. Finally, he
modelled the demand for money as demand for real balances (that is,
M/P), so that if prices rise, nominal money demand should rise by the
same proportion (as in the qty. theory). Thus, although this theory
assumes as Fisher's that money depends on the income level and prices,
it also introduces the interest rate as a factor affecting the money
demand. Besides, an implication of Keynes' theory is that velocity
changes with the interest rate, contradicting the quantity theory.
You can find graphs illustrating Keynes' approach at
http://www.uri.edu/artsci/newecn/Classes/Art/INT1/Mac/1970s/Money.price1.html
Baumol-Tobin Cash Management Model
This theory is derived from Inventory modelling. It assumes, as
Keynes, that income must be held in either money or bonds. B-T assumed
only money could be used to make transactions (i.e. you can't buy
stuff and pay with bonds); and bonds pay an interest rate while money
does not. They also assumed there was a cost of converting bonds into
money (this could also be understood as having a bank account and
incuring a cost -a time cost, for example- each time one goes to
withdraw money. In B-T's model, from this trade-off (if you hold a lot
of money you won't receive interest payments; while if you hold too
little money, you'll have to go very frequently to the bank) arises an
optimal demand for holding money. As in Keynes, in B-T's model the
demand for money depends positively on the income level (because more
income implies more transactions) and negatively on the interest rate,
because holding money has the opportunity cost of foregone interest
payments from the bonds or bank account.
Some graphs on B-T cash management model can be found at the following link
http://courses.essex.ac.uk/ec/ec385/Lecture-3,%20The%20Demand%20for%20Money.pdf
Friedman's Modern Quantity Theory
This model is very well explained in two paragraphs in the following link
http://www.oswego.edu/~edunne/340chapter21.html
Also, at that link, there is a little more information regarding the
other models you're interested in.
Google search terms
money demand fisher keynes baumol tobin friedman
://www.google.com/search?sourceid=navclient&q=money+demand+fisher+keynes+baumol+tobin+friedman
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Best wishes!
elmarto |
