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Economic policies and demand for money: evidence from Canada

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Author Info
Amir Kia
Abstract

This study identifies Canadian fiscal and monetary policy regime changes that could influence the services of money. It is argued that if these policy regime changes were not incorporated in the estimation of demand for real balances, the resulting estimate would be biased and unstable. Using Canadian monthly data for the January 1975 to June 2001 period, the paper estimates a standard demand-for-money (M1) function with and without these policy regime changes. It was found the demand for money in Canada is stable over the short- and long-run periods when these policy regime changes are incorporated and the estimated coefficients have correct signs.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 12 (July)
Pages: 1389-1407
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Handle: RePEc:taf:applec:v:38:y:2006:i:12:p:1389-1407

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  1. Johansen, S[empty]ren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244. [Downloadable!] (restricted)
  2. Johansen, Soren, 1995. "Identifying restrictions of linear equations with applications to simultaneous equations and cointegration," Journal of Econometrics, Elsevier, vol. 69(1), pages 111-132, September. [Downloadable!] (restricted)
  3. Vasco J. C. R. De A. Gabriel & Artur C. B. Da Silva Lopes & Luis C. Nunes, 2003. "Instability in cointegration regressions: a brief review with an application to money demand in Portugal," Applied Economics, Taylor and Francis Journals, vol. 35(8), pages 893-900, January. [Downloadable!] (restricted)
  4. Arestis, Philip & Hadjimatheou, George & Zis, George, 1992. "The Impact of Financial Innovations on the Demand for Money in the U.K. and Canada," Applied Financial Economics, Taylor and Francis Journals, vol. 2(2), pages 115-23, June. [Downloadable!] (restricted)
  5. Friedman, Milton, 1988. "Money and the Stock Market," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 221-45, April. [Downloadable!] (restricted)
  6. Christopher Adam & Michael Goujon & Sylviane Guillaumont Jeanneney, 2004. "The transactions demand for money in the presence of currency substitution: evidence from Vietnam," Applied Economics, Taylor and Francis Journals, vol. 36(13), pages 1461-1470, July. [Downloadable!] (restricted)
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  7. Kevin Clinton, 1997. "Implementation of Monetary Policy in a Regime with Zero Reserve Requirements," Working Papers 97-8, Bank of Canada. [Downloadable!]
  8. Pagan, Adrian, 1986. "Two Stage and Related Estimators and Their Applications," Review of Economic Studies, Blackwell Publishing, vol. 53(4), pages 517-38, August. [Downloadable!] (restricted)
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  9. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
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  11. Scott Hendry, 1995. "Long-Run Demand for M1," Macroeconomics 9511001, EconWPA. [Downloadable!]
  12. Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249. [Downloadable!]
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  13. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February. [Downloadable!] (restricted)
  14. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  15. Thornton, John, 1998. "Real Stock Prices and the Long-Run Demand for Money in Germany," Applied Financial Economics, Taylor and Francis Journals, vol. 8(5), pages 513-17, October. [Downloadable!] (restricted)
  16. Hamburger, Michael J., 1977. "Behavior of the money stock : Is there a puzzle?," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 265-288, July. [Downloadable!] (restricted)
  17. Martin B. Schmidt, 2003. "Money and prices: evidence from the G7 countries," Applied Economics, Taylor and Francis Journals, vol. 35(17), pages 1799-1809, November. [Downloadable!] (restricted)
  18. Camarero, M & Ordonez, J & Tamarit, C R, 2002. "Monetary Transmission in Spain: A Structural Cointegrated VAR Approach," Applied Economics, Taylor and Francis Journals, vol. 34(17), pages 2201-12, November. [Downloadable!] (restricted)
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