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Exogeneity within the M2 Demand Function: Evidence from a Large Macroeconomic System

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Author Info
Martin B. Schmidt

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Abstract

A large body of literature investigates whether a stable and predictable long-run association between money and its arguments exists. One point of variation between models is whether to include an interest rate measure directly within the long-run relationship. Several recent studies indicate that empirical findings are sensitive to the choice. Therefore, the present article reexamines the empirical significance of the interest rate within a four-equation macroeconomic system. The results suggest that the interest rate (1) may be excluded from the M2 demand function, (2) is strongly exogenous to most of the system's remaining variables, and (3) may represent a common trend. (JEL E41, E52, C32) Copyright 2004, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/ei/cbh086
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Publisher Info
Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 42 (2004)
Issue (Month): 4 (October)
Pages: 634-646
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Handle: RePEc:oup:ecinqu:v:42:y:2004:i:4:p:634-646

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Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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This page was last updated on 2009-12-15.

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