A Component-Based Analysis Of The Danish Long-Run Money Demand Relation
This paper examines the relation between monetary asset components and some of the variables that traditionally enter into aggregate money demand relations. This is done for Danish data within the natural framework of a multivariate econometric model. The purpose of the study is to investigate issues in relation to the level and weighting of a monetary aggregate. We show that within this model it is possible to identify monetary aggregates at different levels of aggregation and that for the narrow aggregate (M1) equal weighting of the components are permitted. For the broader aggregates, (M2) or (M2-M1), equal weighting is no longer appropriate. These findings are not contradictory to what we would expect from aggregation and index number theory. Finally, the overall identifica-tion of the stationary (or long-run) structure points towards a co-existence of a liquid and a less liquid money demand relation which is interpreted as an indication of the possibility of splitting the total money demand relation with respect to different motives for holding money.
|Date of creation:||18 Jul 1999|
|Contact details of provider:|| Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark|
Phone: 38 15 25 75
Fax: 38 15 34 99
Web page: http://www.cbs.dk/departments/econ/
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- William Barnett, 2005.
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- Spanos, Aris, 1984. "Liquidity as a Latent Variable-An Application of the MIMIC Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 46(2), pages 125-143, May.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, April.
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- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May. Full references (including those not matched with items on IDEAS)
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