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Canadian Money Demand Functions: Cointegration‐Rank Stability

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  • ALFRED A. HAUG

Abstract

This paper applies new tests for cointegration (Chao and Phillips, Journal of Econometrics, Vol. 91 (1999), pp. 279–304) and for cointegration‐rank stability with unknown change point (Quintos, Journal of Econometrics, Vol. 82 (1998), pp. 289–315) to Canadian money demand. Historical data of Metcalf et al. (Canadian Journal of Economics, Vol. 31 (1998), pp. 104–124) back to 1872 are used. The paper also considers shorter spans starting in 1957 and 1968 instead. The results show that a specification with M1 has the most rank stability. The rank does not fall below one and cointegration is present at all times in the full samples and also in the subsamples. However, additional cointegrating relations enter the vector error‐correction system for all samples.

Suggested Citation

  • Alfred A. Haug, 2006. "Canadian Money Demand Functions: Cointegration‐Rank Stability," Manchester School, University of Manchester, vol. 74(2), pages 214-230, March.
    • Handle: RePEc:bla:manchs:v:74:y:2006:i:2:p:214-230
    DOI: 10.1111/j.1467-9957.2006.00489.x
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    References listed on IDEAS

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    1. Alfred A. Haug & Julie Tam, 2001. "A Closer Look at Long Run Money Demand," Working Papers 2002_09, York University, Department of Economics, revised Sep 2002.
    2. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    3. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2, June.
    4. Dewald, William G. & Haug, Alfred A., 2004. "Longer-term effects of monetary growth on real and nominal variables, major industrial countries, 1880-2001," Working Paper Series 382, European Central Bank.
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    Cited by:

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    2. Noriega Antonio E. & Ramos Francia Manuel & Rodríguez-Pérez Cid Alonso, 2015. "Money Demand Estimations in Mexico and of its Stability 1986-2010, as well as Some Examples of its Uses," Working Papers 2015-13, Banco de México.
    3. Birendra Bahadur Budha, 2011. "An Empirical Analysis of Money Demand Function in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 23(1), pages 54-70, April.
    4. Mouyad Alsamara & Zouhair Mrabet, 2019. "Asymmetric impacts of foreign exchange rate on the demand for money in Turkey: new evidence from nonlinear ARDL," International Economics and Economic Policy, Springer, vol. 16(2), pages 335-356, April.
    5. Zhan, Minghua & Wang, Lijun & Zhan, Shuwei & Lu, Yao, 2023. "Does digital finance change the stability of money demand function? Evidence from China," Journal of Asian Economics, Elsevier, vol. 88(C).
    6. Yannick Roussel & Amjad Ali & Marc Audi, 2021. "Measuring The Money Demand In Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(1), pages 27-41, March.

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