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Equilibrium Income and Interest Elasticities of the Demand for M1 in Japan

Author

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  • Robert H. Rasche

    (Professor of Economics, Michigan State University, East Lansing, Michigan, U.S.A.)

Abstract

This study investigates the equilibrium relationship between real M1 balances, real GNP and short-term interest rates in Japan since 1955. Although each of these variables appears to be nonstationary, the evidence suggests that there exists a stable, stationary linear combination of the three variables over the entire sample period. The estimated coefficients of this vector suggest that the long-run income elasticity of real M1 is not significantly different from one, and the long-run interest elasticity is around 0.5.

Suggested Citation

  • Robert H. Rasche, 1990. "Equilibrium Income and Interest Elasticities of the Demand for M1 in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 8(2), pages 31-58, September.
    • Handle: RePEc:ime:imemes:v:8:y:1990:i:2:p:31-58
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    File URL: http://www.imes.boj.or.jp/research/papers/english/me8-2-3.pdf
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    Cited by:

    1. 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.
    2. McCallum, Bennett T. & Nelson, Edward, 2010. "Money and Inflation: Some Critical Issues," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 3, pages 97-153, Elsevier.
    3. McKenzie, C. R., 1992. "Money demand in an open economy," Journal of the Japanese and International Economies, Elsevier, vol. 6(2), pages 176-198, June.
    4. Livio Stracca, 2003. "The Functional Form Of The Demand For Euro Area M1," Manchester School, University of Manchester, vol. 71(2), pages 172-204, March.
    5. Edward Nelson, 2012. "A Review of Allan Meltzer’s A History of the Federal Reserve, Volume 2," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 241-266, June.

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