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The Demand for M4: A Sectoral Analysis Part 2 The Corporate Sector

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Ryland Thomas

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Abstract

This paper is the second part of a study on the determinants of the broad money aggregate M4, following a similar analysis of the personal sector developed in Working Paper No 61. It models the broad money holdings of both industrial and commercial companies (ICCs) and other financial institutions (OFIs) in the UK, and examines what role they play in the transmission mechanism. ICCs are shown to have both a transactions and a portfolio motive for holding money. A three-equation model of money, investment and the cost of capital is estimated, and the results suggest the existence of a corporate sector liquidity channel whereby firms' "excess" money balances have a negative influence on the cost of capital and a positive impact on investment spending. OFIs' money holdings are shown to depend upon wealth and relative rates of return, in line with standard portfolio models of money demand. But as OFIs are the chief counterparts to banks' liability management activity, their money holdings are also modelled jointly with deposit rates.

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Paper provided by Bank of England in its series Bank of England working papers with number 62.

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Handle: RePEc:boe:boeewp:62

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bean, Charles R, 1981. "An Econometric Model of Manufacturing Investment in the UK," Economic Journal, Royal Economic Society, vol. 91(361), pages 106-21, March. [Downloadable!] (restricted)
  2. Bardsen, G. & Fisher, P.G., 1993. "The Importance of Being Structured," Papers 02-93, Norwegian School of Economics and Business Administration-.
  3. Hendry, D.F. & Mizon, G.E., 1990. "Evaluating Dynamic Econometric Models By Encompassing The Var," Economics Series Working Papers 99102, University of Oxford, Department of Economics.
  4. Ireland, Jonathan & Wren-Lewis, Simon, 1992. "Buffer Stock Money and the Company Sector," Oxford Economic Papers, Oxford University Press, vol. 44(2), pages 209-31, April. [Downloadable!] (restricted)
  5. Drake, Leigh & Chrystal, K Alec, 1994. "Company-Sector Money Demand: New Evidence on the Existence of a Stable Long-Run Relationship for the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 479-94, August. [Downloadable!] (restricted)
  6. Boswijk, H. Peter, 1995. "Efficient inference on cointegration parameters in structural error correction models," Journal of Econometrics, Elsevier, vol. 69(1), pages 133-158, September. [Downloadable!] (restricted)
  7. Johansen, Soren & Juselius, Katarina, 1994. "Identification of the long-run and the short-run structure an application to the ISLM model," Journal of Econometrics, Elsevier, vol. 63(1), pages 7-36, July. [Downloadable!] (restricted)
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  8. Ryland Thomas, . "The Demand for M4: A Sectoral Analysis. Part 1 - The Personal Sector," Bank of England working papers 61, Bank of England. [Downloadable!]
  9. Urbain, Jean-Pierre, 1992. "On Weak Exogeneity in Error Correction Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(2), pages 187-207, May.
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  10. Ericsson, Neil R., 1995. "Conditional and structural error correction models," Journal of Econometrics, Elsevier, vol. 69(1), pages 159-171, September. [Downloadable!] (restricted)
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  11. Mizen, Paul, 1996. "Modeling the demand for money in the industrial and commercial companies sector in the United Kingdom," Journal of Policy Modeling, Elsevier, vol. 18(4), pages 445-467, August. [Downloadable!] (restricted)
  12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. K Alec Chrystal & Paul Mizen, . "Consumption, money and lending: a joint model for the UK household sector," Bank of England working papers 134, Bank of England. [Downloadable!]
  2. Ryland Thomas, . "The Demand for M4: A Sectoral Analysis. Part 1 - The Personal Sector," Bank of England working papers 61, Bank of England. [Downloadable!]
  3. Norbert Janssen, . "The demand for M0 in the United Kingdom reconsidered: some specification issues," Bank of England working papers 83, Bank of England. [Downloadable!]
  4. K Alec Chrystal & Paul Mizen, . "Other financial corporations: Cinderella or ugly sister of empirical monetary economics?," Bank of England working papers 151, Bank of England. [Downloadable!]
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  5. Shamik Dhar & Stephen P Millard, . "A limited participation model of the monetary transmission mechanism in the United Kingdom," Bank of England working papers 117, Bank of England. [Downloadable!]
  6. Colin Ellis, . "Elasticities, markups and technical progress: evidence from a state-space approach," Bank of England working papers 300, Bank of England. [Downloadable!]
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