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A Component® based Analysis of the danish Long-run Money Demand Relation

Author

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  • Lisbeth Funding la Cour

    (Institute of Statistics, University of Copenhagen)

Abstract

This paper examines the relation between monetary asset components and some of the variables that traditionally enter into aggregate money demand relations. The analysis is performed on Danish data within the natural frame-work 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, an attempt to identify the whole stationary (or long-run) structure of the system is made, and we find a co-existence of a liquid and a less liquid money demand relation pointing towards the possibility of splitting the total money demand relation with respect to different motives for holding money.

Suggested Citation

  • Lisbeth Funding la Cour, 1995. "A Component® based Analysis of the danish Long-run Money Demand Relation," Discussion Papers 95-18, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:9518
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    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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