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A Closer Look At Long-Run U.S. Money Demand: Linear Or Nonlinear Error-Correction With M0, M1, Or M2?

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  • HAUG
  • JULIE TAM

Abstract

"We study annual U.S. data from 1869 or 1900 to 1999. We find evidence for a well-specified and stable model of money demand with data from 1946 to 1999. We carry out diagnostic and stability tests, including linearity tests. A linear error-correction model with the monetary base performs better than a model with M1. A specification with M2 is not supported. We use real gross national product as the scale variable and a short-term interest rate as the opportunity cost measure. We estimate an income elasticity of 0.86 and an interest rate elasticity of - 0.44 for the monetary base". ("JEL "E41) Copyright 2006 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 45 (2007)
Issue (Month): 2 (04)
Pages: 363-376

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Handle: RePEc:bla:ecinqu:v:45:y:2007:i:2:p:363-376

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Cited by:
  1. Greene, Clinton A., 2010. "Smooth-adjustment econometrics and inventory-theoretic money management," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1031-1047, June.
  2. Balke, Nathan S. & Ma, Jun & Wohar, Mark E., 2013. "The contribution of economic fundamentals to movements in exchange rates," Journal of International Economics, Elsevier, vol. 90(1), pages 1-16.
  3. Jiang, Chun & Li, Xiao-Lin & Chang, Hsu-Ling & Su, Chi-Wei, 2013. "Uncovered interest parity and risk premium convergence in Central and Eastern European countries," Economic Modelling, Elsevier, vol. 33(C), pages 204-208.

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