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Revisiting the US money demand function: an application of the Lagrange multiplier structural break unit root test and the bounds test for a long-run relationship

  • Paresh Kumar Narayan

In this article, we examine the issue of a levels relationship and stability of the US money demand function over the period 1959:01 to 2004:02. We use the Lagrange multiplier structural break unit root test and the bounds testing approach to a long-run relationship in levels of the variables, namely real money demand, nominal interest rate and real income. We find greater evidence for a long-run relationship in levels and stability of the US money demand function when we use M2 as a proxy for money demand. However, we find little evidence for a long-run relationship between M1 and M2 with their determinants for the recent period, spanning the last decade or so.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 40 (2008)
Issue (Month): 7 ()
Pages: 897-904

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Handle: RePEc:taf:applec:v:40:y:2008:i:7:p:897-904
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