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Is the US demand for money unstable?

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  • B. Bhaskara Rao
  • Saten Kumar

Abstract

The demand for money (M1) for the US is estimated with annual data from 1960 to 2008 and its stability is analysed with the extended Gregory and Hansen (1996b) test. In addition to estimating the canonical specification, alternative specifications are estimated which include a trend and additional variables to proxy the cost of holding money. Results with our extended specification showed that there has been a structural change in 1998 and the constraint that income elasticity is unity could not be rejected by subsample estimates. Short run dynamic adjustment equations are estimated with the lagged residuals from the Fully Modified Ordinary Least Squares (FMOLS) estimates of cointegrating equation and also with the General to Specific (GETS) approach.

Suggested Citation

  • B. Bhaskara Rao & Saten Kumar, 2011. "Is the US demand for money unstable?," Applied Financial Economics, Taylor & Francis Journals, vol. 21(17), pages 1263-1272.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:17:p:1263-1272
    DOI: 10.1080/09603107.2011.568395
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    Cited by:

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    2. Miller, Stephen M. & Martins, Luis Filipe & Gupta, Rangan, 2019. "A Time-Varying Approach Of The Us Welfare Cost Of Inflation," Macroeconomic Dynamics, Cambridge University Press, vol. 23(2), pages 775-797, March.
    3. 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).
    4. Mulligan, Robert F. & Koppl, Roger, 2011. "Monetary policy regimes in macroeconomic data: An application of fractal analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(2), pages 201-211, May.
    5. Yutaka Kurihara, 2016. "Demand for money under low interest rates in Japan," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 4(4), pages 12-19, August.
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    7. Kumar, Saten, 2015. "Regional integration, capital mobility and financial intermediation revisited: Application of general to specific method in panel data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 1-17.
    8. Samih Antoine Azar, 2018. "Gold and US money demand," Economics and Business Letters, Oviedo University Press, vol. 7(3), pages 108-114.
    9. Takashi Miyazaki & Shigeyuki Hamori, 2014. "Cointegration with Regime Shift between Gold and Financial Variables," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(4), pages 90-97, October.
    10. Ufuk CAN & Zeynep Gizem CAN & Süleyman DEĞİRMEN, 2019. "Paranın Dolaşım Hızının ve Para Talebi Fonksiyonunun Ekonometrik Analizi: Türkiye Örneği," Istanbul Business Research, Istanbul University Business School, vol. 48(2), pages 218-247, November.
    11. Kumar, Saten & Pacheco, Gail, 2012. "What determines the long run growth rate in Kenya?," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 705-718.
    12. Saten Kumar & Mamta B. Chowdhury & B. Bhaskara Rao, 2013. "Demand for money in the selected OECD countries: a time series panel data approach and structural breaks," Applied Economics, Taylor & Francis Journals, vol. 45(14), pages 1767-1776, May.
    13. Helmut Herwartz & Jordi Sardà & Bernd Theilen, 2016. "Money demand and the shadow economy: empirical evidence from OECD countries," Empirical Economics, Springer, vol. 50(4), pages 1627-1645, June.

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    More about this item

    Keywords

    demand for M1; US; structural breaks; income elasticity; cost of holding money;
    All these keywords.

    JEL classification:

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

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