Stability of the demand for M1 and harmonized M3 in Finland
AbstractWe 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 InfoArticle provided by Springer in its journal Empirical Economics.
Volume (Year): 23 (1998)
Issue (Month): 3 ()
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Other versions of this item:
- Ripatti, Antti, 1996. "Stability of the Demand for M1 and Harmonized M3 in Finland," Research Discussion Papers 18/1996, Bank of Finland.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
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