The estimated value of the growth of the money supply (Reference value)
The most famous example of the practical application of this component of the function of demand for money is probably the “reference value” (reference value) of the European Central Bank (ECB). If the monetary gap gives the answer to the question whether the amount of money in the economy is in demand for it, then the “estimated value” shows how the actual increase in the money supply correlates with the increase in demand for money.
To calculate the equilibrium growth of the money supply, the trending speed of money circulation is used, as well as the “potential” increase in output and equilibrium increase in price levels (the calculation of these indicators is a separate problem and goes beyond the framework of purely monetary analysis).
Monetary macroeconomic theory, as a rule, does not consider modeling the speed of circulation of money as a separate indicator. Instead, the equation to the equilibrium speed of circulation ((p x y) / m = 1 / f (OC)) (McCallum 1989) is displayed from the equation of demand for money (m / p (y, OS)). There are studies devoted to the assessment of the function of this type (Orphanides, Porter 2000).
However, the most common way to evaluate the trending speed of money circulation is the use of the cointegration ratio of the function of demand for money (Nicoletti -altimari 2001). For example, if such a ratio has the form
The formula is available in the paper version of the publication
Other methods for evaluating the “trending” speed of money circulation include literal construction of a linear trend and extrapolation of the resulting trajectory (Brand et al. 2002) or, for example, the calculation of the sliding average speed for a number of recent periods and the adoption of the resulting result as an equilibrium for subsequent periods (Neumann 2003).
Thus, on the basis of the study, the following conclusions can be drawn.
The main distinguishing feature of the function of demand for money in the Russian economy is the high elasticity of demand for income money, which implies a further significant slowdown in the speed of money circulation and increase the monetization of the economy. This assumption seems reasonable, taking into account the low level of monetization of the Russian economy at the moment.
As one could expect, given the high level of dollarization of the economy, in the period under consideration, the change in the exchange rate of the ruble had a significant impact on the demand for money. Moreover, some profitability (in other alternative revenues) were not eventually included in the function or due to the lack of adequate data or due to statistical insignificance.
The use of alternative scalating in the Russian demand for money of variables is relevant. This allows you to get equations with higher quality characteristics, theoretically justified coefficients.
Exogenity of the supply of money imposes a significant restriction on the possibility of practical application of assessments of the function of demand for money in Russia. Nevertheless, in this work, a method of calculating the “indicative” (equilibrium) growth rate of the money supply was considered, assessments of the deviation of the current value of the monetary mass from the equilibrium value were presented.