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Does a Cointegrating M2 Demand Relation Really Exist in the United States?

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  • Miyao, Ryuzo
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    Abstract

    This paper reexamines evidence on M2 demand cointegration in the postwar United States. Equilibrium relations between M2 and various sets of its determinants are analyzed using quarterly observations from 1959:1 to 1988:4, 1990:4, and 1993:4 based on three different testing methods. For earlier subsamples, mixed results are obtained suggesting both cointegration and no cointegration. For the full sample, however, virtually no evidence supports cointegration. Accordingly, a M2 error-correction model is no longer appropriate to investigate short-run dynamics of business fluctuations in the 1990s. Copyright 1996 by Ohio State University Press.

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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 28 (1996)
    Issue (Month): 3 (August)
    Pages: 365-80

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    Handle: RePEc:mcb:jmoncb:v:28:y:1996:i:3:p:365-80

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Rapach, David E., 2001. "Macro shocks and real stock prices," Journal of Economics and Business, Elsevier, vol. 53(1), pages 5-26.
    2. Martin B. Schmidt, 2004. "Exogeneity within the M2 Demand Function: Evidence from a Large Macroeconomic System," Economic Inquiry, Western Economic Association International, vol. 42(4), pages 634-646, October.
    3. Martin Schmidt, 2007. "The long and short of money: short-run dynamics within a structural model," Applied Economics, Taylor and Francis Journals, vol. 40(2), pages 175-192.
    4. Schmidt, Martin B., 2001. "The long and short of money and prices: a market equilibrium approach," Journal of Economics and Business, Elsevier, vol. 53(6), pages 563-583.
    5. Rapach, David E., 2002. "The long-run relationship between inflation and real stock prices," Journal of Macroeconomics, Elsevier, vol. 24(3), pages 331-351, September.
    6. John B. Carlson & Dennis L. Hoffman & Benjamin D. Keen & Robert H. Rasche, 1999. "Results of a study of the stability of cointegrating relations comprised of broad monetary aggregates," Working Paper 9917, Federal Reserve Bank of Cleveland.
    7. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.
    8. Elger, Thomas & Jones, Barry E. & Nilsson, Birger, 2006. "Forecasting with Monetary Aggregates: Recent Evidence for the United States," Journal of Economics and Business, Elsevier, vol. 58(5-6), pages 428-446.
    9. Inagaki, Kazuyuki, 2009. "Estimating the interest rate semi-elasticity of the demand for money in low interest rate environments," Economic Modelling, Elsevier, vol. 26(1), pages 147-154, January.
    10. Yosuke Takeda & Atsuko Ueda, 2006. "Uncovering the Goodhart's Law: Theory and Evidence," 2006 Meeting Papers 162, Society for Economic Dynamics.
    11. Binswanger, Mathias, 2004. "Stock returns and real activity in the G-7 countries: did the relationship change during the 1980s?," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(2), pages 237-252, May.

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