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A Closer Look at Long Run Money Demand

Listed author(s):
  • Alfred A. Haug

    (York University, Canada)

  • Julie Tam

    (Stanford University, USA)

We study annual United States data from 1869 or 1900 to 1999. We find evidence for a well-specified and stable model of money demand with data from 1946 to 1999. We carry out diagnostic and stability tests, including nonlinearity tests. A linear cointegration model with the monetary base performs better than a model with M1. A specification with M2 is not supported. We use real GNP as the scale variable and a short term interest rate as the opportunity cost measure. We estimate an income elasticity of .86 and an interest rate elasticity of -.44 for the monetary base.

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File URL: http://dept.econ.yorku.ca/research/workingPapers/working_papers/Haug_Tam.pdf
File Function: Revised version, 2002
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Paper provided by York University, Department of Economics in its series Working Papers with number 2002_09.

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Length: 21 pages
Date of creation: Nov 2001
Date of revision: Sep 2002
Handle: RePEc:yca:wpaper:2002_09
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