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Stability of the demand for M1 and harmonized M3 in Finland

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  • Antti Ripatti

    ()
    (Bank of Finland, Box 160, FIN-00101 Helsinki, Finland)

Abstract

We derive a theoretical model for the demand for money using the adjustment cost augmented money-in-the-utility-function approach. The steady-state - utility function - parameters of the model of narrow money (M1) estimated with cointegration techniques are stable over the foreign exchange rate regime shift; whereas in the model of harmonized M3 (M3H) they are not stable. The theoretical model fits the M1 data. The adjustment cost parameters of the M1 model describing the dynamics of the demand for money might indicate technological improvements in banking and payments during the sample period. These results suggest that from the Finnish point of view M1 would be a more appropriate intermediate target for monetary policy than harmonized M3.

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 23 (1998)
Issue (Month): 3 ()
Pages: 317-337

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Handle: RePEc:spr:empeco:v:23:y:1998:i:3:p:317-337

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Related research

Keywords: Money-in-the-utility-function model · structural breaks · demand for money · narrow money · harmonized M3;

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Cited by:
  1. Thórarinn G. Pétursson, 2001. "The representative household's demand for money in a cointegrated VAR model," Economics wp12, Department of Economics, Central bank of Iceland.
  2. Frank Browne & Gabriel Fagan & Jerome Henry, 2005. "Money Demand in EU Countries: A Survey," Macroeconomics 0503004, EconWPA.
  3. Felmingham, B. & Zhang, Q., 2000. "The Long Run Demand for Broad Money in Australia Subject to Regime Shifts," Papers 2000-07, Tasmania - Department of Economics.
  4. Nina Budina & Wojtek Maliszewski & Georges de Menil & Geomina Turlea, 2002. "Money, Inflation and output in Romania, 1992-2000," DELTA Working Papers 2002-15, DELTA (Ecole normale supérieure).
  5. Ripatti, Antti & Saikkonen, Pentti, 1998. "Cointegrated Vector Autoregressive Processes with Continuous Structural Changes," Research Discussion Papers 29/1998, Bank of Finland.
  6. 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.
  7. Kia, Amir & Darrat, Ali F., 2007. "Modeling money demand under the profit-sharing banking scheme: Some evidence on policy invariance and long-run stability," Global Finance Journal, Elsevier, vol. 18(1), pages 104-123.
  8. Felmingham, Bruce & Zhang, Qing, 2001. "The Long Run Demand For Broad Money in Australia Subject to Regime Shifts," Australian Economic Papers, Wiley Blackwell, vol. 40(2), pages 146-55, June.

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