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Is There a Stable Money Demand Function under the Low Interest Rate Policy? A Panel Data Analysis

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  • Fujiki, Hiroshi

    (Bank of Japan)

  • Hsiao, Cheng

    (U Southern CA and Hong Kong U Science & Technology)

  • Shen, Yan

    (U Southern CA)

Abstract

We use annual Japanese prefecture data on income, population, demand deposits, and saving deposits from 1992 to 1997 to investigate the issue of whether there exists a stable money demand function under the low interest rate policy. The evidence appears to support the contention that there does exist a stable money demand function with long-run income elasticity greater than one for M2 and less than one for Ml. Furthermore, we find that Japan's money demand is sensitive to interest rate changes. However, there is no evidence of the presence of a liquidity trap.

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Bibliographic Info

Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 20 (2002)
Issue (Month): 2 (April)
Pages: 1-23

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Handle: RePEc:ime:imemes:v:20:y:2002:i:2:p:1-23

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Cited by:
  1. Cheng Hsiao & Yan Shen & Hiroshi Fujiki, 2002. "Aggregate vs Disaggregate Data Analysis - A Paradox in the Estimation of Money Demand Function of Japan Under the Low Interest Rate Policy," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A4-1, International Conferences on Panel Data.
  2. Cargill, Thomas F. & Parker, Elliott, 2004. "Price deflation, money demand, and monetary policy discontinuity: a comparative view of Japan, China, and the United States," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 125-147, March.
  3. Jun Nagayasu, 2012. "Financial innovation and regional money," Applied Economics, Taylor & Francis Journals, vol. 44(35), pages 4617-4629, December.
  4. Fischer, Andreas M., 2007. "Measuring income elasticity for Swiss money demand: What do the cantons say about financial innovation?," European Economic Review, Elsevier, vol. 51(7), pages 1641-1660, October.
  5. Yukinobu Kitamura & Hiroshi Fujiki, 2004. "The Big Mac Standard: A statistical Illustration," Economics Bulletin, AccessEcon, vol. 6(13), pages 1-18.
  6. repec:wyi:wpaper:001997 is not listed on IDEAS
  7. Hiroshi Fujiki & Cheng Hsiao, 2008. "Aggregate and Household Demand for Money: Evidence from Public Opinion Survey on Household Financial Assets and Liabilities," IMES Discussion Paper Series 08-E-17, Institute for Monetary and Economic Studies, Bank of Japan.
  8. Claudio Morana, 2005. "The Japanese deflation: has it had real effects? Could it have been avoided?," Applied Economics, Taylor & Francis Journals, vol. 37(12), pages 1337-1352.
  9. Ryuzo Miyao, 2002. "Liquidity Trap and the Stability of Money Demand: Is Japan Really Trapped at the Zero Bound?," Discussion Paper Series 127, Research Institute for Economics & Business Administration, Kobe University.

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