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Money demand stability: a changepoint exploration in dependence structure

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  • Movaghari, Hadi
  • Ramian, Hormoz
  • Serletis, Apostolos
  • Sermpinis, Georgios

Abstract

This study uses the copula technique to examine instabilities in the dependence structure of the money demand function while relaxing the linearity assumption of previous approaches. The results show that elliptical copulas best capture dependence for traditional simple-sum monetary aggregates (Sum M2), whereas Archimedean copulas are more appropriate for Divisia aggregates (Divisia M2 and M4). Changepoint analysis identifies two breaks for simple-sum measures, in the early 1980s and around the 2000s, coinciding with the beginning and end of the Great Moderation. For Divisia measures, two changepoints in the mid-1980s and mid-1990s are consistently identified, while a third is less conclusive, occurring in 2017:Q4 for Divisia M2 and 2013:Q1 for Divisia M4. Overall, stability measures do not provide conclusive evidence that Divisia aggregates are more stable than traditional measures.

Suggested Citation

  • Movaghari, Hadi & Ramian, Hormoz & Serletis, Apostolos & Sermpinis, Georgios, 2026. "Money demand stability: a changepoint exploration in dependence structure," Macroeconomic Dynamics, Cambridge University Press, vol. 30, pages 1-66, January.
    • Handle: RePEc:cup:macdyn:v:30:y:2026:i::p:e66_66
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