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Stability of the demand for M1 and harmonized M3 in Finland

Listed author(s):
  • Ripatti, Antti

We derive a theoretical model for the demand for money using the money-in-the-utility-function approach.The steady-state - utility function - parameters of the model of narrow money (Ml) estimated with cointegration techniques are stable over the foreign exchange rate regime shift; whereas in the model of harmonized M3 (M3H) they are not stable.The theoretical model fits the M1 data.The adjustment cost parameters of the M1 model describing the dynamics of the demand for money are stable over the sample period.The adjustment cost parameters of the M3H model are not stable.These results suggest that from the Finnish point of view Ml would be a more appropriate intermediate target for monetary policy than harmonized M3. Keywords: money-in-the-utility-function model - structural breaks - demand for money - narrow money - harmonized M3

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File URL: https://helda.helsinki.fi/bof/bitstream/123456789/7855/1/77140.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 18/1996.

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Date of creation: 1996
Handle: RePEc:bof:bofrdp:1996_018
Contact details of provider: Postal:
Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland

Web page: http://www.suomenpankki.fi/en/

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