Empirical studies of the relationship between money and expenditures frequently seek to explain movements in aggregate expenditures by movements in some appropriate money total. For example, in the most notable recent such study, Friedman and Meiselman 1 conclude that the appropriate money total is currency plus all commercial bank deposits. Past and current changes in this variable better explain expenditure changes than do changes in each of two alternative money totals.2 The assumption implicit in such tests of the money-expenditures relationship is that the behavior of the components of any money total does not matter. Specifically, Friedman and Meiselman estimate:

Dwight Jaffee's most important criticism of my article is that the empirical estimates of the model gratuitously excluded a variable, and that this biased downward my estimate of the long-run interest elasticity of velocity. Since the most notable difference between my article and the bulk of the literature on the demand for money is my finding of an essentially zero interest-elasticity of velocity, Jaffee's criticism is surely germane. However, Jaffee has misinterpreted mv model, and, even if his misinterpretation is accepted, his empirical results do little violence to the findings. Jaffee's misinterpretation of my model can be seen by comparing his equation (2) with equation (1) in my article, which I rewrite, adopting Jaffee's notation:

Output prices tend to respond faster to input increases than to decreases. This tendency is found in more than two of every three markets examined. It is found as frequently in producer goods markets as in consumer goods markets. In both kinds of markets the asymmetric response to cost shocks is substantial and durable. On average, the immediate response to a positive cost shock is at least twice the response to a negative shock, and that difference is sustained for at least five to eight months. Unlike past studies, which documented similar asymmetries in selected markets (gasoline, agricultural products, etc.), this one uses large samples of diverse products: 77 consumer and 165 producer goods. Accordingly, the results suggest a gap in an essential part of economic theory. As a start on filling this gap, the study finds no asymmetry in the resonse of an individual decision maker (a supermarket chain) to its costs, but it finds above‐average asymmetry where a cost shock is filtered through a fragmented wholesale distribution system. It also finds a negative correlation between the degree of asymmetry and input price volatility and no correlation with proxies for inventory costs, asymmetric menu costs of price changes, and imperfect competition.