Measuring income elasticity for Swiss money demand: What do the cantons say about financial innovation?
AbstractRecent time-series evidence has re-confirmed the forecasting ability of Swiss broad money. The same money demand studies and others, however, find that the income elasticity is greater than one. Such parameter estimates are difficult to reconcile with transactions demand theory. This study re-examines the estimates for income elasticity in money demand based on cross-regional evidence for Switzerland. Particular attention is given to the influence of regional financial sophistication. The cross-cantonal results find that the income elasticity lies between 0.4 and 0.6. This discrepancy between the two empirical methodologies has important consequences for the conduct of Swiss monetary policy.
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Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 51 (2007)
Issue (Month): 7 (October)
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Web page: http://www.elsevier.com/locate/eer
Other versions of this item:
- Fischer, Andreas M, 2005. "Measuring Income Elasticity for Swiss Money Demand: What Do the Cantons Say About Financial Innovation?," CEPR Discussion Papers 5050, C.E.P.R. Discussion Papers.
- Andreas Fischer, 2005. "Measuring Income Elasticity for Swiss Money Demand: What do the cantons say about financial innovation?," Working Papers 05.01, Swiss National Bank, Study Center Gerzensee.
- Andreas M. Fischer, 2006. "Measuring Income Elasticity for Swiss Money Demand: What do the Cantons say about Financial Innovation?," Working Papers 2006-01, Swiss National Bank.
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
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