The Demand for M1 in the U.S.A., 1960-1988
Estimated U.S. M1 demand functions appear unstable, regularly "breaking down," over 1960-88 (e.g., missing money, great velocity decline, M1-explosion). The authors propose a money demand function whose arguments include inflation, real income, long-term bond yield and risk, T-bill interest rates, and learning curve weighted yields on newly introduced instruments in M1 and nontransactions M2. The model is estimated in dynamic error-correction form; it is constant and, with an equation standard error of 0.4 percent, variance-dominates most previous models. Estimating alternative specifications explains earlier "breakdowns," showing the model's distinctive features to be important in accounting for the data. Copyright 1992 by The Review of Economic Studies Limited.
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Volume (Year): 59 (1992)
Issue (Month): 1 (January)
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