... unanticipated shocks so that the quantity of money at any moment may diverge from its target amount. The BSM approach claims that by assuming that the desired Md is always and at every moment realised, the conventional theories leave out important factors which then reduces their empirical success. The BSM theory is in fact based on the traditional transactionary Md : given that there are costs in selling assets when money is needed, agents may keep money balances in spite of their lower returns. BSM arises because the cost of transitory money holdings (foregone interest) are less than costs of adjustment for other monetary assets and certainly less than for real assets (eg stocks of goods) or real flows such as consumption (for households) and altering the production (for firms). In fact, an interesting note is that as money becomes a substitute for information, the very existence of a monetary ...

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