The recent financial deregulation and the interest elasticity of the simple M1 demand function : an empirical note
The main objective of this note is to examine whether the interest elasticity of money demand has increased during the last few years. A simple money demand regression that includes additional intercept and slope dummy variables defined over the interval 1981.01 to 1985.03 is estimated for the whole sample period 1961.01-1985.03. The regression results show that the elasticity of money demand with respect to market interest rates has for now increased. No shifts are detected in income and time trend elasticities. The in-sample predictions of the more interest-sensitive money demand regression are broadly consistent with the actual behavior of Ml observed so far in the 1980s. The residuals also suggest that the MI demand function has been subject to transitory shocks over the same period.
|Date of creation:||1985|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.richmondfed.org/|
More information through EDIRC
|Order Information:|| Web: http://www.richmondfed.org/publications/ Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Phillip Cagan & Anna J. Schwartz, 1987.
"Has the Growth of Money Substitutes Hindered Monetary Policy?,"
in: Money in Historical Perspective, pages 209-233
National Bureau of Economic Research, Inc.
- Cagan, Phillip & Schwartz, Anna Jacobson, 1975. "Has the Growth of Money Substitutes Hindered Monetary Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 7(2), pages 137-59, May.
- Michael Dotsey, 1983. "The effects of cash management practices on the demand for demand deposits," Working Paper 83-02, Federal Reserve Bank of Richmond.
- Carlson, John A & Frew, James R, 1980. "Money Demand Responsiveness to the Rate of Return on Money: A Methodological Critique," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 598-607, June.
- Goodfriend, Marvin, 1985. "Reinterpreting money demand regressions," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 207-241, January.
- R. W. Hafer & Scott E. Hein, 1982. "Financial innovations and the interest elasticity of money demand: some historical evidence," Working Papers 1982-011, Federal Reserve Bank of St. Louis.
- Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
- Klein, Benjamin, 1974. "Competitive Interest Payments on Bank Deposits and the Long-Run Demand for Money," American Economic Review, American Economic Association, vol. 64(6), pages 931-49, December.
- 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.
When requesting a correction, please mention this item's handle: RePEc:fip:fedrwp:85-03. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (William Perkins)
If references are entirely missing, you can add them using this form.