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Revisiting the US money demand function: an application of the Lagrange multiplier structural break unit root test and the bounds test for a long-run relationship

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  • Paresh Kumar Narayan

Abstract

In this article, we examine the issue of a levels relationship and stability of the US money demand function over the period 1959:01 to 2004:02. We use the Lagrange multiplier structural break unit root test and the bounds testing approach to a long-run relationship in levels of the variables, namely real money demand, nominal interest rate and real income. We find greater evidence for a long-run relationship in levels and stability of the US money demand function when we use M2 as a proxy for money demand. However, we find little evidence for a long-run relationship between M1 and M2 with their determinants for the recent period, spanning the last decade or so.

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Bibliographic Info

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

Volume (Year): 40 (2008)
Issue (Month): 7 ()
Pages: 897-904

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Handle: RePEc:taf:applec:v:40:y:2008:i:7:p:897-904

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Cited by:
  1. Long, Dara & Samreth, Sovannroeun, 2008. "The Monetary Model of Exchange Rate: Evidence from the Philippines Using ARDL Approach," MPRA Paper 9822, University Library of Munich, Germany.
  2. Omer, Muhammad, 2009. "Stability of money demand function in Pakistan," MPRA Paper 35306, University Library of Munich, Germany.

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