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Structural changes and the US money demand function

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  • Kyongwook Choi
  • Chulho Jung

Abstract

Previous literature on the stability of the US money demand function suggests mixed results. In this article, we study the stability of the money demand function from the standpoint of structural changes in the function. We first investigate if a stable money demand function can be found for the US for the period from the first quarter of 1959 to the fourth quarter of 2000. The results show that a stable long-run money demand function does not exist for the sample period under consideration. We then estimate unknown structural break points in the variables of the money demand function using Bai and Perron's (1998) method and test if there is a stable relationship in each sub-sample period of the break points. The results show that a stable relationship exists for each sub-sample period. The estimated income elasticity and interest rate semi-elasticity are relatively smaller than Ball's (2001) estimates, but consistent with his argument.

Suggested Citation

  • Kyongwook Choi & Chulho Jung, 2009. "Structural changes and the US money demand function," Applied Economics, Taylor & Francis Journals, vol. 41(10), pages 1251-1257.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:10:p:1251-1257
    DOI: 10.1080/00036840601007385
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    3. Bobby Davis & David Karemera & Louis Whitesides, 2013. "The intertemporal stability of the US money demand function: new evidence from switching regressions," Applied Economics Letters, Taylor & Francis Journals, vol. 20(6), pages 581-586, April.
    4. Akhand Akhtar Hossain, 2015. "The Evolution of Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 14611.
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    7. Rao, B. Bhaskara & Kumar, Saten, 2009. "Is the US Demand for Money Unstable?," MPRA Paper 15715, University Library of Munich, Germany.
    8. Chor Foon Tang, 2013. "Evidence on Structural Instability in the Japanese Money Demand Function," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(3), pages 255-272, August.

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