UK Money Demand 1873-2001: A Cointegrated VAR Analysis with Additive Data Corrections
AbstractThis 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.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 04-21.
Length: 19 pages
Date of creation: Oct 2004
Date of revision:
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United Kingdom; money demand; cointegration; additive outlier; level shift;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-11-22 (All new papers)
- NEP-CBA-2004-11-22 (Central Banking)
- NEP-HIS-2004-11-22 (Business, Economic & Financial History)
- NEP-MAC-2004-11-22 (Macroeconomics)
- NEP-MON-2005-01-10 (Monetary Economics)
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