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Testing Superexogeneity: The Demand for Broad Money in the UK

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Author Info

  • Hurn, A S
  • Muscatelli, V A

Abstract

The paper examines the relevance of the Lucas critique for the demand for broad money (M4) in the UK. The authors adopt the methodology proposed by Engle and Hendry (1989) for testing superexogeneity. After presenting a conditional ECM model for M4, they construct marginal models for three explanatory variables: the own-interest rate, inflation, and wealth. Whilst the data indicates that there have been significant structural breaks in the marginal models due to regime shifts, the parameters of their conditional model seem invariant to these shifts in the generating processes. The apparent refutation of the Lucas critique in this instance is of interest given that a number of recent studies have argued that broad money may be more appropriate as a context for testing forward-looking buffer stock models. Copyright 1992 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 54 (1992)
Issue (Month): 4 (November)
Pages: 543-56

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Handle: RePEc:bla:obuest:v:54:y:1992:i:4:p:543-56

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Cited by:
  1. Amir Kia & Ali F. Darrat, 2003. "Modeling Money Demand under the Profit-Sharing Banking Scheme: Evidence on Policy Invariance and Long-Run Stability," Carleton Economic Papers 03-13, Carleton University, Department of Economics, revised Apr 2007.
  2. Abbas Valadkhani, 2002. "An Empirical Analysis of Australian Labour Productivity," School of Economics and Finance Discussion Papers and Working Papers Series 110, School of Economics and Finance, Queensland University of Technology.
  3. Levent KORAP & Metin YILDIRIM, 2012. "Testing the Lucas Critique for the Turkish Money Demand Function," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 27(318), pages 57-82.
  4. Kia, Amir, 2003. "Rational speculators and equity volatility as a measure of ex ante risk," Global Finance Journal, Elsevier, vol. 14(2), pages 135-157, July.
  5. Adolfo Sachsida & Mário Jorge Cardoso de Mendonça, 2006. "Domestic Saving and Investment Revised: Can the Feldstein-Horioka Equation be Used for Policy Analysis?," Discussion Papers 1158, Instituto de Pesquisa Econômica Aplicada - IPEA.
  6. Francis, Bill B. & Leachman, Lori L., 1998. "Superexogeneity and the dynamic linkages among international equity markets," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 475-492, June.

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