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Another look at long-run money demand

  • Ball, Laurence

This paper investigates the long-run demand for M1 in the postwar United States. Previous studies, based on data ending in the late 1980's, are inconclusive about the parameters of postwar money demand. This paper obtains precise estimates of these parameters by extending the data through 1996. The income elasticity of money demand is approximately 0.5, and the interest semi-elasticity is approximately -0.05. These parameters are significantly smaller in absolute value than the corresponding parameters for the prewar period.

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File URL: http://www.sciencedirect.com/science/article/B6VBW-4234B16-4/2/6ad70234ecedc3f3ff4f777303ac3d3d
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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 47 (2001)
Issue (Month): 1 (February)
Pages: 31-44

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Handle: RePEc:eee:moneco:v:47:y:2001:i:1:p:31-44
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  1. Carl F. Christ, 1993. "Assessing applied econometric results," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 71-94.
  2. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  3. William Poole, 1987. "Monetary Policy Lessons of recent Inflation and Disinflation," NBER Working Papers 2300, National Bureau of Economic Research, Inc.
  4. Hoffman, Dennis L. & Rasche, Robert H. & Tieslau, Margie A., 1995. "The stability of long-run money demand in five industrial countries," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 317-339, April.
  5. Lucas, Robert E., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 137-167, January.
  6. Mulligan, Casey B, 1997. "Scale Economies, the Value of Time, and the Demand for Money: Longitudinal Evidence from Firms," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1061-79, October.
  7. Sala-i-Martin, X. & Mulligan, C.B., 1992. "U.S. Money Demand: Surprising Cross-Sectional Estimates," Papers 671, Yale - Economic Growth Center.
  8. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
  9. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 99-125, January.
  10. Chari, V. V. & Christiano, Lawrence J. & Kehoe, Patrick J., 1996. "Optimality of the Friedman rule in economies with distorting taxes," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 203-223, April.
  11. Baba, Yoshihisa & Hendry, David F & Starr, Ross M, 1992. "The Demand for M1 in the U.S.A., 1960-1988," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 25-61, January.
  12. Dennis Hoffman & Robert H. Rasche, 1989. "Long-run Income and Interest Elasticities of Money Demand in the United States," NBER Working Papers 2949, National Bureau of Economic Research, Inc.
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