IDEAS home Printed from https://ideas.repec.org/a/ect/emjrnl/v3y2000i2p162-176.html
   My bibliography  Save this article

The representative household’s demand for money in a cointegrated VAR model

Author

Listed:
  • THÓRARINN G. PÉTURSSON

Abstract

A representative household model with liquidity services directly in the utility function is used to derive a stable, data congruent error correction model of broad money demand in Iceland. This model gives a linear, long-run relation between real money balances, output and the opportunity cost of holding money that is used to over-identify the cointegrating space. The over-identifying restrictions suggest that the representative household is equally averse to variations in consumption and real money holdings. Finally, a forward-looking interpretation of the short-run dynamics, assuming quadratic adjustment costs, cannot be rejected by the data.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Thórarinn G. Pétursson, 2000. "The representative household’s demand for money in a cointegrated VAR model," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 162-176.
    • Handle: RePEc:ect:emjrnl:v:3:y:2000:i:2:p:162-176
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. Antti Ripatti, 1998. "Stability of the demand for M1 and harmonized M3 in Finland," Empirical Economics, Springer, vol. 23(3), pages 317-337.
    3. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-1088, October.
    4. Hoffman, Dennis L. & Rasche, Robert H. & Tieslau, Margie A., 1995. "The stability of long-run money demand in five industrial countries," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 317-339, April.
    5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    6. Merton H. Miller & Daniel Orr, 1966. "A Model of the Demand for Money by Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(3), pages 413-435.
    7. Hendry, David F. & Ericsson, Neil R., 1991. "Modeling the demand for narrow money in the United Kingdom and the United States," European Economic Review, Elsevier, vol. 35(4), pages 833-881, May.
    8. Pesaran, M Hashem, 1997. "The Role of Economic Theory in Modelling the Long Run," Economic Journal, Royal Economic Society, vol. 107(440), pages 178-191, January.
    9. Anders Rahbek & Rocco Mosconi, 1999. "Cointegration rank inference with stationary regressors in VAR models," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 76-91.
    10. repec:zbw:bofrdp:1996_018 is not listed on IDEAS
    11. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    12. Lucas, Robert E., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 137-167, January.
    13. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
    14. Goldfeld, Stephen M. & Sichel, Daniel E., 1990. "The demand for money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 8, pages 299-356, Elsevier.
    15. repec:bla:scandj:v:84:y:1982:i:1:p:1-12 is not listed on IDEAS
    16. Braun, Phillip A. & Constantinides, George M. & Ferson, Wayne E., 1993. "Time nonseparability in aggregate consumption : International evidence," European Economic Review, Elsevier, vol. 37(5), pages 897-920, June.
    17. Engsted, Tom & Haldrup, Niels, 1999. "Estimating the LQAC Model with I(2) Variables," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(2), pages 155-170, March-Apr.
    18. Keith Cuthbertson & Mark P. Taylor, 1990. "Money demand, expectations, and the forward-looking model," Proceedings, Federal Reserve Bank of Cleveland, pages 289-324.
    19. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    20. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    21. Cuthbertson, Keith & Taylor, Mark P, 1987. "The Demand for Money: A Dynamic Rational Expectations Model," Economic Journal, Royal Economic Society, vol. 97(388a), pages 65-76, Supplemen.
    22. Peter K. Cornelius, 1990. "Monetary Indexation and Revenues from Money Creation: The Case of Iceland," IMF Staff Papers, Palgrave Macmillan, vol. 37(4), pages 825-848, December.
    23. Yoshihisa Baba & David F. Hendry & Ross M. Starr, 1992. "The Demand for M1 in the U.S.A., 1960–1988," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(1), pages 25-61.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Franz Seitz & Julian von Landesberger, 2014. "Household Money Holdings in the Euro Area: An Explorative Investigation," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(2), pages 83-115, November.
    2. Dumitru, Ionut, 2002. "Money Demand in Romania," MPRA Paper 10629, University Library of Munich, Germany.
    3. Ásgeir Daníelsson & Lúdvik Elíasson & Magnús F. Gudmundsson & Svava J. Haraldsdóttir & Lilja S. Kro & Thórarinn G. Pétursson & Thorsteinn S. Sveinsson, 2019. "QMM A Quarterly Macroeconomic Model of the Icelandic Economy Version 4.0," Economics wp82, Department of Economics, Central bank of Iceland.
    4. Ásgeir Daníelsson & Ólafur Sindri Helgason & Stefán Thórarinsson, 2016. "Estimating the Natural Interest Rate for Iceland: An Exploratory Study," Economics wp74, Department of Economics, Central bank of Iceland.
    5. Abdul Qayyum, 2005. "Modelling the Demand for Money in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(3), pages 233-252.
    6. Franz Seitz & Julian von Landesberger, 2012. "Household Money Demand: The Euro Area Case," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(III), pages 409-438, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gerdesmeier, Dieter, 1996. "Die Rolle des Vermögens in der Geldnachfrage," Discussion Paper Series 1: Economic Studies 1996,05, Deutsche Bundesbank.
    2. Hendry, David F. & Ericsson, Neil R., 1991. "Modeling the demand for narrow money in the United Kingdom and the United States," European Economic Review, Elsevier, vol. 35(4), pages 833-881, May.
    3. 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.
    4. Elena Sinelnikova-Muryleva, 2011. "Innovations in the sphere of payments and the money demand in Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 157P.
    5. Gerdesmeier, Dieter, 1996. "The role of wealth in money demand," Discussion Paper Series 1: Economic Studies 1996,05e, Deutsche Bundesbank.
    6. Ericsson, Neil R & Hendry, David F & Mizon, Grayham E, 1998. "Exogeneity, Cointegration, and Economic Policy Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 370-387, October.
    7. Adrian C. Darnell, 1994. "A Dictionary Of Econometrics," Books, Edward Elgar Publishing, number 118.
    8. Jyh-Lin Wu & Yu-Hau Hu, 2007. "Currency substitution and nonlinear error correction in Taiwan's demand for broad money," Applied Economics, Taylor & Francis Journals, vol. 39(13), pages 1635-1645.
    9. Browne, F.X. & Fagan, G. & Henry, J., 1997. "Money Demand in EU Countries : A Survey," Papers 7, European Monetary Institute.
    10. Neil R. Ericsson & Steven B. Kamin, 1993. "Dollarization in Argentina," International Finance Discussion Papers 460, Board of Governors of the Federal Reserve System (U.S.).
    11. Stéphane Goutte & David Guerreiro & Bilel Sanhaji & Sophie Saglio & Julien Chevallier, 2019. "International Financial Markets," Post-Print halshs-02183053, HAL.
    12. Huang, Tai-Hsin & Shen, Chung-Hua, 2002. "Seasonal cointegration and cross-equation restrictions on a forward-looking buffer stock model of money demand," Journal of Econometrics, Elsevier, vol. 111(1), pages 11-46, November.
    13. Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.).
    14. Sunil Sharma & Neil R. Ericsson, 1998. "Broad money demand and financial liberalization in Greece," Empirical Economics, Springer, vol. 23(3), pages 417-436.
    15. Bardsen, Gunnar & Eitrheim, Oyvind & Jansen, Eilev S. & Nymoen, Ragnar, 2005. "The Econometrics of Macroeconomic Modelling," OUP Catalogue, Oxford University Press, number 9780199246502.
    16. Committee, Nobel Prize, 2003. "Time-series Econometrics: Cointegration and Autoregressive Conditional Heteroskedasticity," Nobel Prize in Economics documents 2003-1, Nobel Prize Committee.
    17. Engsted, Tom & Haldrup, Niels, 1997. "Money demand, adjustment costs, and forward-looking behavior," Journal of Policy Modeling, Elsevier, vol. 19(2), pages 153-173, April.
    18. Titelman Kardonsky, Daniel & Martner Fanta, Ricardo, 1992. "La demanda de dinero en Chile: una comparación de métodos alternativos de estimación de vectores de cointegración," Series Históricas 9584, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    19. Geweke, J. & Joel Horowitz & Pesaran, M.H., 2006. "Econometrics: A Bird’s Eye View," Cambridge Working Papers in Economics 0655, Faculty of Economics, University of Cambridge.
    20. Abhijit Sharma & Theodore Panagiotidis, 2003. "An Analysis of Exports and Growth in India: Some Empirical Evidence (1971-2001)," Working Papers 2003004, The University of Sheffield, Department of Economics, revised Nov 2003.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ect:emjrnl:v:3:y:2000:i:2:p:162-176. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/resssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.