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Results of a study of the stability of cointegrating relations comprised of broad monetary aggregates

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Author Info
John B. Carlson
Dennis L. Hoffman
Benjamin D. Keen
Robert H. Rasche

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Abstract

There is strong evidence of a stable “money demand” relationship for MZM and M2 through the 1990s. Though the M2 relationship breaks down somewhere around 1990, evidence has been accumulating that the disturbance is well characterized as a permanent upward shift in M2 velocity that began around 1990 and was largely over by 1994. This paper’s results support the hypothesis that households permanently reallocated a portion of their wealth from time deposits to mutual funds. This reallocation may have been induced by depository restructuring, but it could also be explained by appropriately measured opportunity cost.

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File URL: http://www.clevelandfed.org/research/workpaper/1999/Wp9917.pdf
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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9917.

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Length: 1-51
Date of creation: 1999
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Handle: RePEc:fip:fedcwp:9917

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Keywords: Demand for money;

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This paper has been announced in the following NEP Reports: 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. Joshua N. Feinman & Richard D. Porter, 1992. "The continuing weakness in the M2," Finance and Economics Discussion Series 209, Board of Governors of the Federal Reserve System (U.S.).
  2. repec:cup:etheor:v:11:y:1995:i:5:p:984-1014 is not listed on IDEAS
  3. John Wenninger & John Partlan, 1992. "Small time deposits and the recent weakness in M2," Quarterly Review, Federal Reserve Bank of New York, issue Spr, pages 21-35.
  4. Cara Lown & Stavros Peristiani & Kenneth J. Robinson, 1999. "What was behind the M2 breakdown?," Financial Industry Studies Working Paper 99-2, Federal Reserve Bank of Dallas. [Downloadable!]
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  5. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
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  6. Søren Johansen, 1994. "The role of the constant and linear terms in cointegration analysis of nonstationary variables," Econometric Reviews, Taylor and Francis Journals, vol. 13(2), pages 205-229. [Downloadable!] (restricted)
  7. John V. Duca, 1992. "The case of the missing M2," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 1-24.
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  8. Duca, John V., 1995. "Should bond funds be added to M2?," Journal of Banking & Finance, Elsevier, vol. 19(1), pages 131-152, April. [Downloadable!] (restricted)
  9. Martin Feldstein & James H. Stock, 1993. "The Use of Monetary Aggregate to Target Nominal GDP," NBER Working Papers 4304, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. John B. Carlson & Sharon E. Parrott, 1991. "The demand for M2, opportunity cost, and financial change," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-11. [Downloadable!]
  11. Hoffman, Dennis L & Rasche, Robert H, 1991. "Long-Run Income and Interest Elasticities of Money Demand in the United States," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 665-74, November. [Downloadable!] (restricted)
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  12. Athanasios Orphanides & Richard Porter, 1998. "P* revisited: money-based inflation forecasts with a changing equilibrium velocity," Finance and Economics Discussion Series 1998-26, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  13. Estrella, Arturo & Mishkin, Frederic S., 1997. "Is there a role for monetary aggregates in the conduct of monetary policy?," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 279-304, October. [Downloadable!] (restricted)
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  14. Feldstein, Martin & Stock, James H., 1996. "Measuring money growth when financial markets are changing," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 3-27, February. [Downloadable!] (restricted)
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  15. Athanasios Orphanides & Brian Reid & David H. Small, 1994. "The empirical properties of a monetary aggregate that adds bond and stock funds to M2," Proceedings, Federal Reserve Bank of St. Louis, issue Nov, pages 31-51. [Downloadable!]
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  16. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
  17. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June. [Downloadable!] (restricted)
  18. Horvath, Michael T.K. & Watson, Mark W., 1995. "Testing for Cointegration When Some of the Cointegrating Vectors are Prespecified," Econometric Theory, Cambridge University Press, vol. 11(05), pages 984-1014, October. [Downloadable!]
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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. Lance J. Bachmeier & Norman R. Swanson, 2003. "Predicting Inflation: Does The Quantity Theory Help?," Departmental Working Papers 200317, Rutgers University, Department of Economics. [Downloadable!]
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  2. John B. Carlson & Jeffrey C. Schwarz, 1999. "Effects of movements in equities prices on M2 demand," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 2-9. [Downloadable!]
  3. Jane M. Binner & Peter Tino & Jonathan Tepper & Richard G. Anderson & Barry Jones & Graham Kendall, 2009. "Does money matter in inflation forecasting?," Working Papers 2009-030, Federal Reserve Bank of St. Louis. [Downloadable!]
  4. James R. Lothian & Cornelia H. McCarthy, 2003. "The Behavior of Money and Other Economic Variables: Two Natural Experiments," International Finance 0311011, EconWPA. [Downloadable!]
  5. Michael Dotsey & Carl D. Lantz & Lawrence Santucci, 2000. "Is money useful in the conduct of monetary policy?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 23-48. [Downloadable!]
  6. Sophocles N. Brissimis & Nicholas S. Magginas, 2003. "Changes in Financial Structure and Asset Price Substitutability: A Test of the Bank Lending Channel," Working Papers 05, Bank of Greece. [Downloadable!]
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  7. Markus Knell & Helmut Stix, 2003. "How Robust are Money Demand Estimations? A Meta-Analytic Approach," Working Papers 81, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  8. Yu Hsing, 2006. "Tests Of Functional Forms, Currency Substitution, And Capital Mobility Of Czech Money Demand Function," Prague Economic Papers, University of Economics, Prague, vol. 2006(4), pages 291-299. [Downloadable!] (restricted)
  9. Alfred A. Haug & Julie Tam, 2001. "A Closer Look at Long Run Money Demand," Working Papers 2002_09, York University, Department of Economics, revised Sep 2002. [Downloadable!]
  10. David Cook & Woon Gyu Choi, 2007. "Financial Market Risk and U.S. Money Demand," IMF Working Papers 07/89, International Monetary Fund. [Downloadable!]
  11. Barry E. Jones & Livio Stracca, 2006. "Are money and consumption additively separable in the euro area? A non-parametric approach," Working Paper Series 704, European Central Bank. [Downloadable!]
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