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On the stability of money demand

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  • Lucas, Robert E.
  • Nicolini, Juan Pablo

Abstract

We show that regulatory changes that occurred in the banking sector in the early 1980s, that considerably weakened Regulation Q, can explain the apparent instability of money demand starting in the same period. We evaluate the effects of the regulatory changes using a model that goes beyond aggregates as M1 and treats currency and different deposit types as alternative means of payments. We use the model to construct a new monetary aggregate that performs remarkably well for all the period 1915–2012.

Suggested Citation

  • Lucas, Robert E. & Nicolini, Juan Pablo, 2015. "On the stability of money demand," Journal of Monetary Economics, Elsevier, vol. 73(C), pages 48-65.
    • Handle: RePEc:eee:moneco:v:73:y:2015:i:c:p:48-65
    DOI: 10.1016/j.jmoneco.2015.03.005
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    More about this item

    Keywords

    Money Demand; Monetary Base;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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