IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v12y2024i2p49-d1339593.html
   My bibliography  Save this article

Demand for Money in the United States: Stability and Forward-Looking Tests

Author

Listed:
  • Amir Kia

    (Finance and Economics Department, Utah Valley University, Orem, UT 84058-5999, USA)

Abstract

This study shows that demand for money is a function not only of interest rate, real exchange rate, and personal consumption but also of fiscal variables like deficit, debt, and foreign-financed debt. It is stable over the short and long run. This study also covers the investigation of policy invariance of money demand, an important issue ignored so far in the existing literature on the demand for money in the United States. It was found that the behavior of agents in the money market changes as the real exchange rate, consumption, and interest rate change. Namely, agents in the money market are forward-looking, and their expectations are formed rationally. This also means that even though the parameters of money demand are stable, according to the stability test results, they can be unstable, as agents adapt their behavior based on any change in the exchange rate, consumption, and/or interest rate. In other words, the contemporaneous real exchange and interest rate variables are not superexogenous in demand for M1, and the contemporaneous consumption is not superexogenous in demand for M2.

Suggested Citation

  • Amir Kia, 2024. "Demand for Money in the United States: Stability and Forward-Looking Tests," Economies, MDPI, vol. 12(2), pages 1-18, February.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:2:p:49-:d:1339593
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/12/2/49/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/12/2/49/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Matteo Mogliani & Giovanni Urga, 2018. "On the Instability of Long‐Run Money Demand and the Welfare Cost of Inflation in the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(7), pages 1645-1660, October.
    2. Kia, Amir, 2013. "Determinants of the real exchange rate in a small open economy: Evidence from Canada," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 163-178.
    3. Amir Kia, 2020. "Impact of Public Debt, Deficit and Debt Financing on Private Investment in a Large Country: Evidence from the United States," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 6(2), pages 139-161, December.
    4. Tsutomu Watanabe & Tomoyoshi Yabu, 2018. "The Demand for Money at the Zero Interest Rate Bound," Working Papers on Central Bank Communication 002, University of Tokyo, Graduate School of Economics.
    5. Boucekkine, R. & Laksaci, M. & Touati-Tliba, M., 2021. "Long-run stability of money demand and monetary policy: The case of Algeria," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    6. Laurence Boone & Paul Noord, 2008. "Wealth effects on money demand in the euro area," Empirical Economics, Springer, vol. 34(3), pages 525-536, June.
    7. Mankiw, N Gregory & Summers, Lawrence H, 1986. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 415-429, November.
    8. Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
    9. Amir Kia & Ali F. Darrat, 2003. "Modeling Money Demand under the Profit-Sharing Banking Scheme: Evidence on Policy Invariance and Long-Run Stability," Carleton Economic Papers 03-13, Carleton University, Department of Economics, revised Apr 2007.
    Full references (including those not matched with items on IDEAS)

    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. Ansgar Belke & Robert Czudaj, 2010. "Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(4), pages 285-315.
    2. del Rosío Barajas-Escamilla María & Kia Amir & Sotomayor Maritza, 2016. "Concepts and Measurements of Economic Interdependence: The Case of the United States and Mexico," Global Economy Journal, De Gruyter, vol. 16(1), pages 63-90, March.
    3. Gerdesmeier, Dieter, 1996. "Die Rolle des Vermögens in der Geldnachfrage," Discussion Paper Series 1: Economic Studies 1996,05, Deutsche Bundesbank.
    4. Douglas Sutherland & Peter Hoeller & Balázs Égert & Oliver Röhn, 2010. "Counter-cyclical Economic Policy," OECD Economics Department Working Papers 760, OECD Publishing.
    5. Dirk Steffen & Ingo Pitterle, 2004. "Spillover Effects of Fiscal Policy Under Flexible Exchange Rates," Econometric Society 2004 Australasian Meetings 286, Econometric Society.
    6. Zia-Ur- Rahman, 2019. "Influence of Excessive Expenditure of the Government in Perspective of Interest Rate and Money Circulation Which in Turn Affects the Growing Process in Pakistan," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 6(2), pages 120-129.
    7. Yuanyuan Zhang & Saralees Nadarajah, 2017. "Flexible Heavy Tailed Distributions for Big Data," Annals of Data Science, Springer, vol. 4(3), pages 421-432, September.
    8. repec:wyi:journl:002087 is not listed on IDEAS
    9. Evan F. Koenig, 1993. "Rethinking the IS in IS-LM: adapting Keynesian tools to non-Keynesian economies Part 1," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Sep, pages 32-50.
    10. Grzegorz Rybak & Edward Kozłowski & Krzysztof Król & Tomasz Rymarczyk & Agnieszka Sulimierska & Artur Dmowski & Piotr Bednarczuk, 2023. "Algorithms for Optimizing Energy Consumption for Fermentation Processes in Biogas Production," Energies, MDPI, vol. 16(24), pages 1-17, December.
    11. David F. Hendry, 2013. "Econometric Modelling: The ‘Consumption Function’ In Retrospect," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(5), pages 495-522, November.
    12. Eckhard Hein & Christian Schoder, 2011. "Interest rates, distribution and capital accumulation -- A post-Kaleckian perspective on the US and Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 693-723, November.
    13. Marc Lavoie & Gabriel Rodriguez & Mario Seccareccia, 2004. "Similitudes and Discrepancies in Post-Keynesian and Marxist Theories of Investment: A Theoretical and Empirical Investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(2), pages 127-149.
    14. Colin C. Williams & Ioana Alexandra Horodnic, 2017. "Tackling Bogus Self-Employment: Some Lessons From Romania," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 22(02), pages 1-20, June.
    15. Branstetter, Lee & Chatterjee, Chirantan & Higgins, Matthew J., 2022. "Generic competition and the incentives for early-stage pharmaceutical innovation," Research Policy, Elsevier, vol. 51(10).
    16. Matthias Hartmann & Helmut Herwartz & Yabibal M. Walle, 2012. "Where enterprise leads, finance follows. In-sample and out-of-sample evidence on the causal relation between finance and growth," Economics Bulletin, AccessEcon, vol. 32(1), pages 871-882.
    17. Checo, Ariadne & Mejía, Mariam & Ramírez, Francisco A., 2017. "El rol de los regímenes de precipitaciones sobre la dinámica de precios y actividad del sector agropecuario de la República Dominicana durante el período 2000-2016 [The role of rainfall regimes on ," MPRA Paper 80301, University Library of Munich, Germany.
    18. 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.
    19. Sadorsky, P. A., 1989. "Measuring Resource Scarcity in Non-renewable Resources with Inequality Constrained Estimation," Queen's Institute for Economic Research Discussion Papers 275216, Queen's University - Department of Economics.
    20. Eryilmaz, Unal, 2021. "Enflasyonist Koşullarda Türkiye Ekonomisine İlişkin Bir Para Arzı Tahmini [Money Supply Forecast for the Turkish Economy in Inflationary Conditions]," MPRA Paper 111685, University Library of Munich, Germany.
    21. Yayi Yan & Jiti Gao & Bin Peng, 2021. "On Time-Varying VAR Models: Estimation, Testing and Impulse Response Analysis," Papers 2111.00450, arXiv.org.

    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:gam:jecomi:v:12:y:2024:i:2:p:49-:d:1339593. 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: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    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.