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A stable money demand: Looking for the right monetary aggregate

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Author Info

  • Pedro Teles
  • Ruilin Zhou

Abstract

A money demand relationship with M1 as the monetary aggregate holds very well until the mid-1980s but not well after that. This could be because the demand for money is not a stable relationship. The authors' conclusion is that the measure of money is not a stable measure. Technological innovation and changes in regulatory practices in the past two decades have made other monetary aggregates as liquid as M1. Once an appropriately adjusted measure of money is taken into consideration, the stability of money demand is recovered.

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Bibliographic Info

Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

Volume (Year): (2005)
Issue (Month): Q I ()
Pages: 50-63

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Handle: RePEc:fip:fedhep:y:2005:i:qi:p:50-63:n:v.29no.1

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Related research

Keywords: Money ; Money supply;

References

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  1. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
  2. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  3. Brian Motley, 1988. "Should M2 be redefined?," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 33-51.
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