Money Demand and Inflation: A Cointegration Analysis for Canada

Lubello, Federico (2011): Money Demand and Inflation: A Cointegration Analysis for Canada.

Abstract

The aim of this paper is to investigate the presence of long-run equilibrium relationships among variables that explain money demand in Canada during the period 1983–2011. To this end, I set up a vector-error correction model with an appropriate lag order and test for cointegration by means of the Bartlett corrected trace test. I estimate the long-run money demand parameters by means of the maximum likelihood method of Johansen, comparing an unconstrained benchmark model against other constrained model. I find the latter to not be better than the benchmark one. Finally, I perform sensitivity analysis and check the stability of the resulting cointegration relationships.

• Item Type: MPRA Paper
• Language: English
• Keywords: Canada, cointegration, money demand, vector autoregression
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

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