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Department of Economics, Bar-Ilan University, Ramat-Gan, Israel, and Department of Economics, Vanderbilt University, Nashville, Tennessee.
Tanzi assumes that with T = 0, C + DD will decline (see equation (7)). Since M is constant, it implies that the reduction in currency holdings is offset by an equal increase in TD. However, if one estimates the currency to total money ratio, with C + DD defined as money, only the upper-bound method is appropriate.