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Is There a Stable Money Demand Function under the Low Interest Rate Policy? A Panel Data Analysis

Author

Listed:
  • Fujiki, Hiroshi

    (Bank of Japan)

  • Hsiao, Cheng

    (U Southern CA and Hong Kong U Science & Technology)

  • Shen, Yan

    (U Southern CA)

Abstract

We use annual Japanese prefecture data on income, population, demand deposits, and saving deposits from 1992 to 1997 to investigate the issue of whether there exists a stable money demand function under the low interest rate policy. The evidence appears to support the contention that there does exist a stable money demand function with long-run income elasticity greater than one for M2 and less than one for Ml. Furthermore, we find that Japan's money demand is sensitive to interest rate changes. However, there is no evidence of the presence of a liquidity trap.

Suggested Citation

  • Fujiki, Hiroshi & Hsiao, Cheng & Shen, Yan, 2002. "Is There a Stable Money Demand Function under the Low Interest Rate Policy? A Panel Data Analysis," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(2), pages 1-23, April.
    • Handle: RePEc:ime:imemes:v:20:y:2002:i:2:p:1-23
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    Citations

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    Cited by:

    1. Yan Shen & Cheng Hsiao & Hiroshi Fujiki, 2005. "Aggregate vs. disaggregate data analysis-a paradox in the estimation of a money demand function of Japan under the low interest rate policy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(5), pages 579-601.
    2. Claudio Morana, 2005. "The Japanese deflation: has it had real effects? Could it have been avoided?," Applied Economics, Taylor & Francis Journals, vol. 37(12), pages 1337-1352.
    3. Fischer, Andreas M., 2007. "Measuring income elasticity for Swiss money demand: What do the cantons say about financial innovation?," European Economic Review, Elsevier, vol. 51(7), pages 1641-1660, October.
    4. Shigeyoshi Miyagawa & Yoji Morita & Yoshitaka Sawada, 2007. "The Role of Central Bank in the Recession in the Case of Japan's Recession," Discussion Papers 17, Aboa Centre for Economics.
    5. Cargill, Thomas F. & Parker, Elliott, 2004. "Price deflation, money demand, and monetary policy discontinuity: a comparative view of Japan, China, and the United States," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 125-147, March.
    6. Ryuzo Miyao, 2002. "Liquidity Trap and the Stability of Money Demand: Is Japan Really Trapped at the Zero Bound?," Discussion Paper Series 127, Research Institute for Economics & Business Administration, Kobe University.
    7. Jun Nagayasu, 2012. "Financial innovation and regional money," Applied Economics, Taylor & Francis Journals, vol. 44(35), pages 4617-4629, December.
    8. Laurence M. Ball, 2006. "Fiscal Remedies for Japan's Slump," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, pages 279-304, National Bureau of Economic Research, Inc.
    9. Yukinobu Kitamura & Hiroshi Fujiki, 2004. "The Big Mac Standard: A statistical Illustration," Economics Bulletin, AccessEcon, vol. 6(13), pages 1-18.
    10. Hyunjoo Ryou & Cristina Terra, 2015. "Exchange Rate Dynamics under Financial Market Frictions," THEMA Working Papers 2015-03, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    11. Seidman, Laurence & Lewis, Kenneth, 2015. "Stimulus without debt in a severe recession," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 945-960.
    12. Akhand Akhtar Hossain, 2015. "The Evolution of Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 14611.
    13. Hiroshi Fujiki & Cheng Hsiao, 2008. "Aggregate and Household Demand for Money: Evidence from the Public Opinion Survey on Household Financial Assets and Liabilities," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 26, pages 159-194, December.

    More about this item

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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