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A Component-Based Analysis Of The Danish Long-Run Money Demand Relation

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  • Funding la Cour, Lisbeth

    (Department of Economics, Copenhagen Business School)

Abstract

This paper examines the relation between monetary asset components and some of the variables that traditionally enter into aggregate money demand relations. This is done for Danish data within the natural framework of a multivariate econometric model. The purpose of the study is to investigate issues in relation to the level and weighting of a monetary aggregate. We show that within this model it is possible to identify monetary aggregates at different levels of aggregation and that for the narrow aggregate (M1) equal weighting of the components are permitted. For the broader aggregates, (M2) or (M2-M1), equal weighting is no longer appropriate. These findings are not contradictory to what we would expect from aggregation and index number theory. Finally, the overall identifica-tion of the stationary (or long-run) structure points towards a co-existence of a liquid and a less liquid money demand relation which is interpreted as an indication of the possibility of splitting the total money demand relation with respect to different motives for holding money.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7513
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Bibliographic Info

Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 06-1999.

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Length: 24 pages
Date of creation: 18 Jul 1999
Date of revision:
Handle: RePEc:hhs:cbsnow:1999_006

Contact details of provider:
Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 34 99
Email:
Web page: http://www.cbs.dk/departments/econ/
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Related research

Keywords: Monetary asset components; Aggregate money demand; Denmark; Demand relation;

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  1. William Barnett, 2005. "Monetary Aggregation," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200510, University of Kansas, Department of Economics, revised Mar 2005.
  2. Laidler, D., 1988. "Taking Money Seriously," UWO Department of Economics Working Papers 8804, University of Western Ontario, Department of Economics.
  3. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
  4. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
  5. Søren Johansen & Katarina Juselius, 1992. "Identification of the Long-Run and the Short-Run Structure: An Application to the ISLM Model," Discussion Papers 92-04, University of Copenhagen. Department of Economics.
  6. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  7. Michael D. Bordo & Lars Jonung, 1991. "The Long-Run Behavior of Velocity: The Institutional Approach Revisited," NBER Working Papers 3204, National Bureau of Economic Research, Inc.
  8. 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.
  9. Johansen, Søren, 1995. "A Stastistical Analysis of Cointegration for I(2) Variables," Econometric Theory, Cambridge University Press, vol. 11(01), pages 25-59, February.
  10. Johansen, Søren, 1992. "A Representation of Vector Autoregressive Processes Integrated of Order 2," Econometric Theory, Cambridge University Press, vol. 8(02), pages 188-202, June.
  11. Spanos, Aris, 1984. "Liquidity as a Latent Variable-An Application of the MIMIC Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 46(2), pages 125-43, May.
  12. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  13. Clements, Kenneth W. & Nguyen, Phuong, 1980. "Economic monetary aggregates--comment," Journal of Econometrics, Elsevier, vol. 14(1), pages 49-53, September.
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