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Stability of the demand for M1 and harmonized M3 in Finland

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  • Ripatti, Antti

Abstract

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

Suggested Citation

  • Ripatti, Antti, 1996. "Stability of the demand for M1 and harmonized M3 in Finland," Research Discussion Papers 18/1996, Bank of Finland.
  • Handle: RePEc:bof:bofrdp:1996_018
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    Cited by:

    1. Felmingham, B. & Zhang, Q., 2000. "The Long Run Demand for Broad Money in Australia Subject to Regime Shifts," Papers 2000-07, Tasmania - Department of Economics.
    2. Amir Kia, 2001. "Interest-free and Interest-bearing Money Demand: Policy Invariance and Stability," Emory Economics 0107, Department of Economics, Emory University (Atlanta).
    3. Browne, F.X. & Fagan, G. & Henry, J., 1997. "Money Demand in EU Countries : A Survey," Papers 7, European Monetary Institute.
    4. Budina, Nina & Maliszewski, Wojciech & de Menil, Georges & Turlea, Geomina, 2006. "Money, inflation and output in Romania, 1992-2000," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 330-347, March.
    5. Amir Kia, 2002. "Interest Free and Interest-Bearing Money Demand: Policy Invariance and Stability," Working Papers 0214, Economic Research Forum, revised 09 May 2002.
    6. Felmingham, Bruce & Zhang, Qing, 2001. "The Long Run Demand For Broad Money in Australia Subject to Regime Shifts," Australian Economic Papers, Wiley Blackwell, vol. 40(2), pages 146-155, June.
    7. Inagaki, Kazuyuki, 2009. "Estimating the interest rate semi-elasticity of the demand for money in low interest rate environments," Economic Modelling, Elsevier, vol. 26(1), pages 147-154, January.
    8. Thórarinn G. Pétursson, 2000. "The representative household’s demand for money in a cointegrated VAR model," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 162-176.
    9. Kia, Amir & Darrat, Ali F., 2007. "Modeling money demand under the profit-sharing banking scheme: Some evidence on policy invariance and long-run stability," Global Finance Journal, Elsevier, vol. 18(1), pages 104-123.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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