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Financial Innovations and the Interest Elasticity of Money Demand in the United Kingdom, 1963¡V2009

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  • Mohammad S. Hasan

    (Kent Business School, University of Kent, U.K.)

Abstract

This paper empirically examines the relationship between financial innovations and interest elasticity of money demand in the UK. Contrary to most research work in this area, the results indicate that financial innovations and other deregulatory changes in financial market conditions after the 1980s have raised the interest elasticity of money demand, and this appears to support the Gurley-Shaw hypothesis. The evidence calls into question the relative efficacy of a monetary targeting approach in the conduct of monetary policy.

Suggested Citation

  • Mohammad S. Hasan, 2009. "Financial Innovations and the Interest Elasticity of Money Demand in the United Kingdom, 1963¡V2009," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 8(3), pages 225-242, December.
    • Handle: RePEc:ijb:journl:v:8:y:2009:i:3:p:225-242
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    References listed on IDEAS

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    5. Miller, Merton H., 1986. "Financial Innovation: The Last Twenty Years and the Next," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(4), pages 459-471, December.
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    12. Hafer, R W & Hein, Scott E, 1984. "Financial Innovations and the Interest Elasticity of Money Demand: Some Historical Evidence: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 247-252, May.
    13. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 97-116, Spring.
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    Cited by:

    1. Nyamongo, Esman & Ndirangu, Lydia Ndirangu2, 2013. "Financial Innovations and Monetary Policy in Kenya," MPRA Paper 52387, University Library of Munich, Germany.
    2. Singh, Sunny Kumar, 2016. "Currency demand stability in the presence of seasonality and endogenous financial innovation: Evidence from India," MPRA Paper 71552, University Library of Munich, Germany.

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    More about this item

    Keywords

    interest elasticity; money demand; financial innovations; Gurley-Shaw hypothesis; rolling regressions;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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