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Discussion Paper
Milton Friedman and Data Adjustment
When empirically modelling the U.S. demand for money, Milton Friedman more than doubled the observed initial stock of money to account for a "changing degree of financial sophistication" in the United States relative to the United Kingdom. This note discusses effects of this adjustment on Friedman's empirical models. His data adjustment dramatically reduced apparent movements in the velocity of circulation of money, and it adversely affected the constancy and fit of his estimated money demand models.