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UK Money Demand 1873-2001: A Cointegrated VAR Analysis with Additive Data Corrections

Author

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  • Heino Bohn Nielsen

    (Institute of Economics, University of Copenhagen)

Abstract

This paper performs a system cointegration analysis of UK money demand based on real money, real income, the opportunity cost of holding money, and inflation for the period 1873 - 2001. As a novelty we account for the effect of the world wars by estimating additive data corrections, allowing observations during the two world wars to be fundamentally different from peace-time observations. We find a single long-run relation, which links velocity to opportunity costs, and a strong link from excess money to inflation. The long-run structures are reasonably stable, although the information in the data is not evenly distributed over time. In particular, it seems important to include information from the episodes of large variations in velocity and interest rates around 1960-1980.

Suggested Citation

  • Heino Bohn Nielsen, 2004. "UK Money Demand 1873-2001: A Cointegrated VAR Analysis with Additive Data Corrections," Discussion Papers 04-21, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0421
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2004/0421.pdf/
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    Cited by:

    1. Saten Kumar & Don J. Webber, 2013. "Australasian money demand stability: application of structural break tests," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 1011-1025, March.
    2. Rousova, Linda, 2009. "Are the Central European Stock Markets Still Different? A Cointegration Analysis," Discussion Papers in Economics 10993, University of Munich, Department of Economics.

    More about this item

    Keywords

    United Kingdom; money demand; cointegration; additive outlier; level shift;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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