A Stable Money Demand: Looking for the Right Monetary Aggregate

Pedro Teles · Ruilin Zhou

98 citations0/0 files storedRePEc: Research Papers in Economics

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Monetary Policy and Economic Impact Banking stability, regulation, efficiency Economic theories and models

Abstract

A money demand relationship with M1 as the monetary aggregate holds very well until the mid-1980s but not well after that. This could be because the demand for money is not a stable relationship. The authors' conclusion is that the measure of money is not a stable measure. Technological innovation and changes in regulatory practices in the past two decades have made other monetary aggregates as liquid as M1. Once an appropriately adjusted measure of money is taken into consideration, the stability of money demand is recovered.

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References

1993A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems 2000Inflation and Welfare 1949Historical Statistics of the United States, 1789-1945 1963The Demand for Money: The Evidence from the Time Series 1988Money demand in the United States: A quantitative review 2001Another look at long-run money demand

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