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Note on the Stability of Long-Run Money Demand: Is the Interest Elasticity Really Constant?

Author

Listed:
  • Ryuzo Miyao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

This note reexamines the recent evidence by Hoffman, Rasche and Tieslau (1995) that cointegrating M1 demand relationships are stable in postwar industrial countries particularly when the restriction of a unit income elasticity is imposed. We apply Gregory and Hansen's (1996) residual-based test for cointegration with a possible break in the cointegrating vector in an unknown timing. Under a bivariate model where the restriction is imposed, the empirical evidence consistently suggests the possibility of a shift in the interest elasticity in postwar U.S., Canada, and (weakly) Japan.

Suggested Citation

  • Ryuzo Miyao, 1998. "Note on the Stability of Long-Run Money Demand: Is the Interest Elasticity Really Constant?," Discussion Paper Series 94, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:94
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    Cited by:

    1. Nakashima, Kiyotaka & Saito, Makoto, 2012. "On the comparison of alternative specifications for money demand: The case of extremely low interest rate regimes in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 26(3), pages 454-471.

    More about this item

    Keywords

    Interest rate; Elasticity; Cointegration; Money;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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