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Anticipated and Unanticipated Variables in the Demand for M1 in the U.K

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  • Cuthbertson, Keith
  • Taylor, Mark P

Abstract

This paper presents and estimates a model of the demand for money that explicitly embodies forward-looking behavior. Agents' money balances react differently to anticipated and unanticipated changes in income, prices, and interest rates. A multiperiod, rational expectations, quadratic costs of adjustment problem is solved using the discrete time calculus of variations to yield the authors' money demand equation. This estimating equation nests both partial adjustment and error correction alternatives. Empirical results obtained using U.K. data on M1 are encouraging. Copyright 1989 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Cuthbertson, Keith & Taylor, Mark P, 1989. "Anticipated and Unanticipated Variables in the Demand for M1 in the U.K," The Manchester School of Economic & Social Studies, University of Manchester, vol. 57(4), pages 319-339, December.
    • Handle: RePEc:bla:manch2:v:57:y:1989:i:4:p:319-39
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    Cited by:

    1. Parise, Gerald F., 1994. "Permanent income hypothesis and the cost of adjustment," ISU General Staff Papers 1994010108000012303, Iowa State University, Department of Economics.
    2. Breitung, Jörg, 1998. "Neuere Entwicklungen auf dem Gebiet ökonometrischer Strukturmodelle: Strukturelle Vektorautoregressionen," SFB 373 Discussion Papers 1998,80, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.

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