Is the US Demand for Money Unstable?

Rao, B. Bhaskara and Kumar, Saten (2009): Is the US Demand for Money Unstable?

Abstract

The demand for money (M1) for the USA is estimated with annual data from 1960-2008 and its stability is analyzed with the extended Gregory and Hansen (1996b) test. In addition to estimating the canonical specification, alternative specifications are estimated which include a trend and additional variables to proxy the cost of holding money. Results with our extended specification showed that there has been a structural change in 1998 and the constraint that income elasticity is unity could not be rejected by subsample estimates. Short run dynamic adjustment equations are estimated with the lagged residuals from the fully modified OLS (FMOLS) estimates of cointegrating equation and also with the general to specific approach (GETS).

• Item Type: MPRA Paper
• Language: English
• Keywords: Demand for M1, USA, Structural Breaks, Income Elasticity, Cost of Holding Money
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

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