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The demand for broad money in the United Kingdom, 1878-1993

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Author Info
Neil R. Ericsson
David F. Hendry
Kevin M. Prestwich

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Abstract

Using annual data from Friedman and Schwartz (1982), Hendry and Ericsson (1991a) developed an empirical model of the demand for broad money in the United Kingdom over 1878-1975. We update that model over 1976-1993, accounting for changed data definitions and clarifying the concept of constancy. With appropriate measures of opportunity cost and credit deregulation, the model's parameters are empirically constant over the extended sample, which was economically turbulent. Policy implications follow for parameter nonconstancy and predictive failure, causation between money and prices, monetary targeting, deregulation and financial innovation, and the effect of policy on economic agents' behavior.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 596.

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Date of creation: 1997
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Keywords: Money ; Great Britain;

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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. Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Engle, Robert F. & Hendry, David F., 1993. "Testing superexogeneity and invariance in regression models," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 119-139, March. [Downloadable!] (restricted)
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  3. Jurgen A Doornik & Henrik Hansen, . "An omnibus test for univariate and multivariate normalit," Economics Papers W4&91., Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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  4. David F. Hendry & Neil R. Ericsson, 1990. "Modeling the demand for narrow money in the United Kingdom and the United States," International Finance Discussion Papers 383, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  5. Nicholls, D F & Pagan, A R, 1983. "Heteroscedasticity in Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 51(4), pages 1233-42, July. [Downloadable!] (restricted)
  6. Barnett, William A., 1980. "Economic monetary aggregates an application of index number and aggregation theory," Journal of Econometrics, Elsevier, vol. 14(1), pages 11-48, September. [Downloadable!] (restricted)
  7. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  8. Hendry, David F & Mizon, Grayham E, 1978. "Serial Correlation as a Convenient Simplification, not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England," Economic Journal, Royal Economic Society, vol. 88(351), pages 549-63, September. [Downloadable!] (restricted)
  9. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
  10. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De. [Downloadable!] (restricted)
  11. Lubrano, M & Pierse, R G & Richard, J-F, 1986. "Stability of a U.K. Money Demand Equation: A Bayesian Approach to Testing Exogeneity," Review of Economic Studies, Blackwell Publishing, vol. 53(4), pages 603-24, August. [Downloadable!] (restricted)
  12. Sunil Sharma & Neil R. Ericsson, 1996. "Broad Money Demand and Financial Liberalization in Greece," IMF Working Papers 96/62, International Monetary Fund.
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  13. Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
  14. David F. Hendry & Neil R. Ericsson, 1989. "An econometric analysis of UK money demand in MONETARY TRENDS IN THE UNITED STATES AND THE UNITED KINGDOM by Milton Friedman and Anna J. Schwartz," International Finance Discussion Papers 355, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  15. 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)
  16. Banerjee, A & Hendry, D-F & Mizon, G-E, 1996. "The Econometric Analysis of Economic Policy," Economics Working Papers eco96/34, European University Institute.
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  17. Sprenkle, C M & Miller, M H, 1980. "The Precautionary Demand for Narrow and Broad Money," Economica, London School of Economics and Political Science, vol. 47(188), pages 407-21, November. [Downloadable!] (restricted)
  18. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  19. Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 313-334, June. [Downloadable!] (restricted)
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  20. Patterson, Kerry D, 1993. "The Impact of Credit Constraints, Interest Rates and Housing Equity Withdrawal on the Intertemporal Pattern of Consumption--A Diagrammatic Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(4), pages 391-407, November.
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  22. Pagan, Adrian, 1987. " Three Econometric Methodologies: A Critical Appraisal," Journal of Economic Surveys, Blackwell Publishing, vol. 1(1), pages 3-24.
  23. Salkever, David S., 1976. "The use of dummy variables to compute predictions, prediction errors, and confidence intervals," Journal of Econometrics, Elsevier, vol. 4(4), pages 393-397, November. [Downloadable!] (restricted)
  24. Hendry, David F, 1994. "HUS Revisited," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 86-106, Summer.
  25. MacKinnon, James G. & White, Halbert, 1985. "Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties," Journal of Econometrics, Elsevier, vol. 29(3), pages 305-325, September. [Downloadable!] (restricted)
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  26. Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November. [Downloadable!] (restricted)
  27. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May. [Downloadable!] (restricted)
  28. Anderson, Gordon J & Hendry, David F, 1984. "An Econometric Model of United Kingdom Building Societies," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 46(3), pages 185-210, August.
  29. Clements, Michael P & Hendry, David F, 1996. "Intercept Corrections and Structural Change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 475-94, Sept.-Oct. [Downloadable!] (restricted)
  30. Messer, Karen & White, Halbert, 1984. "A Note on Computing the Heteroskedasticity Consistent Covariance Matrix Using Instrumental Variable Techniques," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 46(2), pages 181-84, May.
  31. Goldfeld, Stephen M. & Sichel, Daniel E., 1990. "The demand for money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 8, pages 299-356 Elsevier. [Downloadable!] (restricted)
  32. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July. [Downloadable!] (restricted)
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Cited by:
(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. Neil R. Ericsson & Steven B. Kamin, 2008. "Constructive data mining: modeling Argentine broad money demand," International Finance Discussion Papers 943, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Jennifer L. Castle & David F. Hendry, 2008. "The Long-Run Determinants of UK Wages, 1860-2004," Economics Series Working Papers 409, University of Oxford, Department of Economics. [Downloadable!]
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