Money in the Production Function: An Interpretation of Empirical Results
In a recent article in this journal, Professors Sinai and Stokes (1972) presented a very interesting test of the hypothesis that money enters the production function, and they suggest that real balances could be a missing variable that has contributed to the unexplained 'residual' being attributed to technological The theory of induced innovation, as presented by Fellner (1961) and Schmookler (1966), suggests that market conditions affect the demand for innovation and the realized technological changes. Since money may be regarded as a proxy for short-run fluctuations in the aggregate demand, this theory suggests that money affects output and technological changes as a demand factor rather than as a factor of production. In this note, we suggest the appropriate tests to distinguish between the two alternative hypotheses, and present some empirical results.
- DOI
- 10.2307/1924012
- Volume
- 57 (2)
- Pages
- 246
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