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

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  • Ryuzo Miyao

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

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    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.

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    Bibliographic Info

    Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 94.

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    Length: 19 pages
    Date of creation: May 1998
    Date of revision:
    Handle: RePEc:kob:dpaper:94

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    Keywords: Interest rate; Elasticity; Cointegration; Money;

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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.

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