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The Demand for Monetary Assets in the UK; a Locally Flexible Demand System Analysis

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  • Elger, Thomas

    (Department of Economics, Lund University)

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    Abstract

    This study provides strong empirical support for modeling the demand for monetary assets within a consumer demand framework. We estimate a linearised locally flexible almost ideal demand system, containing five monetary assets, over the period 1991Q4 to 1998Q4. Estimating the system in differences is a convenient method to account for possible non-stationarity in the data, a major concern for applied macroeconomists. All significant un-compensated own-price elasticities are negative. The compensated own-price elasticities are insignificant and the majority of the income elasticities are significant. Theoretical homogeneity and symmetry propositions are satisfied.

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    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP02_6.pdf
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    Bibliographic Info

    Paper provided by Lund University, Department of Economics in its series Working Papers with number 2002:6.

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    Length: 34 pages
    Date of creation: 28 Feb 2002
    Date of revision:
    Handle: RePEc:hhs:lunewp:2002_006

    Contact details of provider:
    Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
    Phone: +46 +46 222 0000
    Fax: +46 +46 2224613
    Web page: http://www.nek.lu.se/en
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    Keywords: Money Demand; Almost Ideal Demand System;

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    3. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
    4. Fleissig, Adrian & Swofford, James L., 1996. "A dynamic asymptotically ideal model of money demand," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 371-380, April.
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    6. Serletis, Apostolos & Shahmoradi, Asghar, 2005. "Semi-Nonparametric Estimates Of The Demand For Money In The United States," Macroeconomic Dynamics, Cambridge University Press, vol. 9(04), pages 542-559, September.
    7. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
    8. Richard G. Anderson & Barry Jones & Travis Nesmith, 1996. "Monetary aggregation theory and statistical index numbers," Working Papers 1996-007, Federal Reserve Bank of St. Louis.
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    16. Richard G. Anderson & Barry Jones & Travis Nesmith, 1996. "Building new monetary services indices: methodology and source data," Working Papers 1996-008, Federal Reserve Bank of St. Louis.
    17. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
    18. Alston, Julian M & Foster, Kenneth A & Green, Richard D, 1994. "Estimating Elasticities with the Linear Approximate Almost Ideal Demand System: Some Monte Carlo Results," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 351-56, May.
    19. Pashardes, Panos, 1993. "Bias in Estimating the Almost Ideal Demand System with the Stone Index Approximation," Economic Journal, Royal Economic Society, vol. 103(419), pages 908-15, July.
    20. Drake, Leigh & Chrystal, K Alec, 1997. "Personal Sector Money Demand in the UK," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 188-206, April.
    21. Belongia, Michael T, 1996. "Measurement Matters: Recent Results from Monetary Economics Reexamined," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1065-83, October.
    22. Binner, Jane & Elger, Thomas & de Peretti, Philipe, 2002. "Is UK Risky Money Weakly Separable? A Stochastic Approach," Working Papers 2002:13, Lund University, Department of Economics.
    23. Binner, Jane & Elger, Thomas, 2002. "The UK Personal Sector Demand for Risky Money," Working Papers 2002:9, Lund University, Department of Economics.
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