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Long-run money demand in Switzerland

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  • Stefan Gerlach

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Abstract

This paper studies long-run demand functions for Swiss M1 and M3, using annual data spanning the period 1907-2016. While the demand functions display plausible price and income elasticities, tests for structural breaks at unknown points in time detect instability in 1929 for real M1 and 1943 for real M3. This instability appears to arise from the way in which the opportunity cost is modelled. While using a single interest rate may be appropriate for M1, for M3 it would likely be helpful to take into consideration both the own return and the return on non-monetary assets.

Suggested Citation

  • Stefan Gerlach, 2017. "Long-run money demand in Switzerland," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 68(01), pages 47-62, December.
  • Handle: RePEc:usg:auswrt:2017:68:01:47-62
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/auswrt/AW_68-01__04_Gerlach.pdf
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    References listed on IDEAS

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    1. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    2. Judd, John P & Scadding, John L, 1982. "The Search for a Stable Money Demand Function: A Survey of the Post-1973 Literature," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 993-1023, September.
    3. Allan H. Meltzer, 1963. "The Demand for Money: The Evidence from the Time Series," Journal of Political Economy, University of Chicago Press, vol. 71, pages 219-219.
    4. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 99-125.
    5. repec:cup:cbooks:9781107199309 is not listed on IDEAS
    6. Hendry, David F & Ericsson, Neil R, 1991. "An Econometric Analysis of U.K. Money Demand in 'Monetary Trends in the United States and the United Kingdom' by Milton Friedman and Anna Schwartz," American Economic Review, American Economic Association, vol. 81(1), pages 8-38, March.
    7. 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.
    8. John P. Judd & John L. Scadding, 1982. "The search for a stable money demand function: a survey of the post- 1973 literature," Working Papers in Applied Economic Theory 109, Federal Reserve Bank of San Francisco.
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