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Is Money Really Exogenous? Testing for Weak Exogeneity in Swiss Money Demand

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  • Fischer, Andreas M

Abstract

Although exogeneity is often associated with controllable policy variables, Engle, Hendry, and Richard (1983) show that the one condition is neither necessary nor sufficient for the other. Whether variables such as monetary aggregates are (weakly) exogenous depends on the conditioning properties of the data generating process. Testing exogeneity claims represents an important step in analyzing money demand functions. Although Switzerland adheres to fairly strict monetarist prescriptions, we reject the hypothesis that M0 and M1 are weakly exogenous for a price equation. Our results for M1 support the conventional view in which money market equations reflect the demand for money as the dependent variable. Copyright 1993 by Ohio State University Press.

Suggested Citation

  • Fischer, Andreas M, 1993. "Is Money Really Exogenous? Testing for Weak Exogeneity in Swiss Money Demand," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 248-258, May.
  • Handle: RePEc:mcb:jmoncb:v:25:y:1993:i:2:p:248-58
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    Cited by:

    1. Luintel, Kul B & Xu, Yongdeng, 2013. "Testing weak exogeneity in multiplicative error models," Cardiff Economics Working Papers E2013/6, Cardiff University, Cardiff Business School, Economics Section.
    2. Schmidt, Martin B., 2001. "The long and short of money and prices: a market equilibrium approach," Journal of Economics and Business, Elsevier, vol. 53(6), pages 563-583.
    3. Zivot, Eric, 2000. "The Power Of Single Equation Tests For Cointegration When The Cointegrating Vector Is Prespecified," Econometric Theory, Cambridge University Press, vol. 16(03), pages 407-439, June.
    4. Petra Gerlach-Kristen, 2007. "A Two-Pillar Phillips Curve for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(IV), pages 425-448, December.
    5. Subramanian S Sriram, 1999. "Survey of Literature on Demand for Money; Theoretical and Empirical Work with Special Reference to Error-Correction Models," IMF Working Papers 99/64, International Monetary Fund.
    6. Petra Gerlach-Kristen, 2001. "The Demand for Money in Switzerland 1936-1995," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 137(IV), pages 535-554, December.
    7. María Elisa Farías, 2008. "Growth and Volatility in Developing Countries: The Role of Credits and Fiscal Policy," Working Papers Central Bank of Chile 488, Central Bank of Chile.
    8. Abdur Chowdhury, 1995. "The demand for money in a small open economy: The case of Switzerland," Open Economies Review, Springer, vol. 6(2), pages 131-144, April.
    9. Martin Schmidt, 2007. "The long and short of money: short-run dynamics within a structural model," Applied Economics, Taylor & Francis Journals, vol. 40(2), pages 175-192.
    10. Martin Schmidt, 2003. "Money and prices: evidence from the G7 countries," Applied Economics, Taylor & Francis Journals, vol. 35(17), pages 1799-1809.
    11. Álvaro Moreno, 2002. "Determinantes del tipo de cambio real en Colombia. Un modelo neokeynesiano," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 4(7), pages 40-61, July-Dece.
    12. A. F. Darrat & M. K. Hsu & M. Zhong, 2000. "Testing export exogeneity in Taiwan: further evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 7(9), pages 563-567.

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