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International Evidence on the Demand for Money


  • Fair, Ray C


One of the current questions in the literature on the demand for money is whethe r the adjustment of actual to desired money holdings is in nominal or real terms. This paper describes a simple procedure that can be used to test the nominal against the real hypothesis. The test is carried out for twenty-seven countries. The paper also tests the structural stability of the demand for money equations and the correctness of th e dynamic specification. The results are strongly in favor of the nom inal-adjustment hypothesis. There is, however, some evidence of moder ate structural instability before and after 1973. The instability doe s not affect the conclusion that the nominal-adjustment hypothesis do minates the real adjustment hypothesis. Copyright 1987 by MIT Press.

Suggested Citation

  • Fair, Ray C, 1987. "International Evidence on the Demand for Money," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 473-480, August.
  • Handle: RePEc:tpr:restat:v:69:y:1987:i:3:p:473-80

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    References listed on IDEAS

    1. R. W. Hafer & Scott E. Hein, 1980. "The dynamics and estimation of short-run money demand," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 26-35.
    2. Daniel L. Thornton, 1985. "Money demand dynamics: some new evidence," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 14-23.
    3. Fair, Ray C, 1970. "The Estimation of Simultaneous Equation Models with Lagged Endogenous Variables and First Order Serially Correlated Errors," Econometrica, Econometric Society, vol. 38(3), pages 507-516, May.
    4. Spencer, David E, 1985. "Money Demand and the Price Level," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 490-496, August.
    5. Donald W.K. Andrews & Ray C. Fair, 1987. "Inference in Econometric Models with Structural Change," Cowles Foundation Discussion Papers 832, Cowles Foundation for Research in Economics, Yale University.
    6. Stephen M. Goldfeld, 1976. "The Case of the Missing Money," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 683-740.
    7. Hendry, David F. & Pagan, Adrian R. & Sargan, J.Denis, 1984. "Dynamic specification," Handbook of Econometrics,in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 18, pages 1023-1100 Elsevier.
    8. R. W. Hafer, 1985. "Monetary stabilization policy: evidence from money demand forecasts," Review, Federal Reserve Bank of St. Louis, issue May, pages 21-26.
    9. Hwang, Hae-shin, 1985. "Test of the Adjustment Process and Linear Homogeneity in a Stock Adjustment Model of Money Demand," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 689-692, November.
    10. Stephen M. Goldfeld, 1973. "The Demand for Money Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 577-646.
    11. Milbourne, Ross, 1983. "Price Expectations and the Demand for Money: Resolution of a Paradox," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 633-638, November.
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