Abstract

GALINDO, Luis Miguel. A Model of the Demand for Buffer Money Balances: the Case of Mexico. Inv. Econ [online]. 2000, vol.60, n.231, pp.47-69. ISSN 0185-1667.

The aim of this paper was to compute for Mexico, a model of the demand for buffer money balances. The results obtained indicate that there is a long-term relationship between the demand for real balances, income and the interest rate, but that within this relationship it is necessary to consider expectations and the possibility of falling behind in the adjustment process. The empirical evidence presented suggests that economic agents do indeed adjust their real balances according to their expectations regarding income and the costs of opportunity, and that they use money as a buffer mechanism against unforeseen surprises. This implies that, in order to be efficient, monetary policy has to take into account the likelihood of delays in the adjustment processes of economic agents, as well as their use of expectations in the determination of their monetary balances. This means that economic agents are able to use money in order to balance or cushion the intentions of the monetary authorities.

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