Structural changes and the US money demand function
AbstractPrevious literature on the stability of the US money demand function suggests mixed results. In this article, we study the stability of the money demand function from the standpoint of structural changes in the function. We first investigate if a stable money demand function can be found for the US for the period from the first quarter of 1959 to the fourth quarter of 2000. The results show that a stable long-run money demand function does not exist for the sample period under consideration. We then estimate unknown structural break points in the variables of the money demand function using Bai and Perron's (1998) method and test if there is a stable relationship in each sub-sample period of the break points. The results show that a stable relationship exists for each sub-sample period. The estimated income elasticity and interest rate semi-elasticity are relatively smaller than Ball's (2001) estimates, but consistent with his argument.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics.
Volume (Year): 41 (2009)
Issue (Month): 10 ()
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- Rao, B. Bhaskara & Kumar, Saten, 2009.
"Is the US Demand for Money Unstable?,"
15715, University Library of Munich, Germany.
- Don J. Webber & Saten Kumar, 2011.
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1101, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
- Saten Kumar & Don J. Webber, 2013. "Australasian money demand stability: application of structural break tests," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 1011-1025, March.
- Kumar, Saten & Webber, Don J., 2010. "Australasian money demand stability: Application of structural break tests," MPRA Paper 27569, University Library of Munich, Germany.
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