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U.S. Money Demand: Structural Shifts or Heterogeneous Agents?


  • Landon, Stuart


This paper examines whether observed "structural shifts" in the money demand function could be the result of agent heterogeneity due to different household income levels. Following the methodology of T. M. Stoker (1986), income distribution variables are found to be significant determinants of money demand and, once changes in the distribution of income are accounted for, there is no evidence of parameter instability. A money demand function incorporating income distribution effects is shown to perform as well or better than several standard alternatives on the basis of diagnostic tests, nonnested hypothesis tests, within-sample prediction errors, and out-of-sample forecasting. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Landon, Stuart, 1992. "U.S. Money Demand: Structural Shifts or Heterogeneous Agents?," Economic Inquiry, Western Economic Association International, vol. 30(3), pages 496-510, July.
  • Handle: RePEc:oup:ecinqu:v:30:y:1992:i:3:p:496-510

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    References listed on IDEAS

    1. Eckbo, B. Espen, 1983. "Horizontal mergers, collusion, and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 241-273, April.
    2. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-142, March.
    3. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
    4. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
    5. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    6. Allen, Bruce T, 1971. "Vertical Integration and Market Foreclosure: The Case of Cement and Concrete," Journal of Law and Economics, University of Chicago Press, vol. 14(1), pages 251-274, April.
    7. Dodd, Peter, 1980. "Merger proposals, management discretion and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 8(2), pages 105-137, June.
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