Real stock prices and the long-run demand for money in Germany

John Harris Thornton

21 citations0/0 files storedApplied Financial Economics

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

Abstract

The Johansen procedure of cointegration is used to test the hypothesis of a stationary relationship between real money balances, real income, interest rates and real stock prices in Germany for the period 1960–89, and an error correction representation of the data is used to explain the short-run dynamics of the demand for money. Results indicate that: real stock prices have a significant and positive wealth effect on the long-run demand for real M1 balances; there are feedback effects between real money balances and interest rates; and unidirectional Granger-causality runs from real income to interest rates, from interest rates to real stock prices, and from real money balances to real income.

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References

1988Testing for a Unit Root in Time Series Regression 1988Statistical analysis of cointegration vectors 1991Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models 1988Some recent development in a concept of causality 1994A Primer on Cointegration with an Application to Money and Income 1988Money and the Stock Market 1972MONEY AND STOCK PRICES: THE CHANNELS OF INFLUENCE 1983Monetarist Perspectives.

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