Friedman’s Modern Quantity Theory of Money

Friedman’s Modern Quantity Theory of Money

Milton Friedman developed a model for money demand based on
the general theory of asset demand.
Money demand, like the demand for any other asset, should be a
function of wealth and the returns of other assets relative to money.
As an asset (store of wealth) money must compete in an
individual’s wealth portfolio with other interest bearing assets.rb = interest rate or rate of return on bonds

Md is positively related to permanent income Yp (here we are
looking at the transaction demand for money); negatively related
to expected interest rates on bonds (rb), the expected rate of
return on equity (re) and expected inflation, (pie)e.