Note on the Stability of Long-Run Money Demand: Is the Interest Elasticity Really Constant?
AbstractThis 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 InfoPaper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 94.
Length: 19 pages
Date of creation: May 1998
Date of revision:
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Interest rate; Elasticity; Cointegration; Money;
Find related papers by 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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- 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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