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Stability of a U.K. money demand equation: a Bayesian approach to testing exogeneity

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  • LUBRANO, M.
  • PIERSE, R.G.
  • RICHARD, J.-F.

Abstract

The paper analyses an M3 demand for money equation for the United Kingdom. Attention is paid to the policy change that occurred in 1971 with the introduction of the measure known as Competition and Credit Control. Classical and Bayesian single equation instrumental variables procedures are developed to investigate the exogeneity of the short-term interest rate and the constancy of the parameters of the underlying relationships. The parameters of the short-term equation have changed as well as the exogeneity status of the interest rate variable but the parameters of the long-term equation appear to be less affected by the policy change.
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Suggested Citation

  • Lubrano, M. & Pierse, R.G. & Richard, J.-F., 1986. "Stability of a U.K. money demand equation: a Bayesian approach to testing exogeneity," LIDAM Reprints CORE 712, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:712
    DOI: 10.2307/2297608
    Note: In : Review of Economic Studies, 53, 603-634, 1986
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    Cited by:

    1. Nijman, T.E. & Steel, M.F.J., 1988. "Exclusion restrictions in instrumental variables equations," Research Memorandum FEW 327, Tilburg University, School of Economics and Management.
    2. Bauwens, L. & Dijk, H. K., 1989. "Bayesian Limited Information Analysis Revisited," Econometric Institute Archives 272386, Erasmus University Rotterdam.
    3. Neil R. Ericsson, David F. Hendry & Kevin M. Prestiwch, "undated". "The UK Demand for Broad Money over the Long run," Economics Papers W29, Economics Group, Nuffield College, University of Oxford.
    4. Garratt, Anthony & Koop, Gary & Mise, Emi & Vahey, Shaun P., 2009. "Real-Time Prediction With U.K. Monetary Aggregates in the Presence of Model Uncertainty," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 480-491.
    5. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.

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