Stability of the Demand for Money in Korea

Bahmani-Oskooee Mohsen · Shin Sungwon

38 citations0/0 files storedInternational Economic Journal

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

Cointegration technique is now a common method of estimating an money demand function. Couple studies that applied this technique to money demand in korea, interpreted their finding of cointegration as a sign of stable money demand. In this paper we show that even though M2 monetary aggregate is cointegrated with income, interest rate and exchange rate, application of CUSUM and CUSUMSQ tests to the residuals of an error-correction model reveal that it is unstable. [E41]

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1990MAXIMUM LIKELIHOOD ESTIMATION AND INFERENCE ON COINTEGRATION — WITH APPLICATIONS TO THE DEMAND FOR MONEY 1993FINITE‐SAMPLE SIZES OF JOHANSEN's LIKELIHOOD RATIO TESTS FOR COINTEGRATION 1992Tests for Parameter Instability in Regressions with 1(1) Processes 1992Testing weak exogeneity and the order of cointegration in UK money demand data 1992Tests for Parameter Instability in Regressions with I(1) Processes 1992VECTOR AUTOREGRESSIVE MODELS WITH UNIT ROOTS AND REDUCED RANK STRUCTURE:ESTIMATION. LIKELIHOOD RATIO TEST, AND FORECASTING 1997The Demand for Money: Theories, Evidence, and Problems

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