The representative household's demand for money in a cointegrated VAR model

Thórarinn Pétursson

Economics from Department of Economics, Central bank of Iceland

Abstract: A representative household model with liquidity services directly in the utility function is used to derive a stable, data congruent error correction model of broad money demand in Iceland. This model gives a linear, long-run relation between real money balances, output and the opportunity cost of holding money that is used to over-identify the cointegrating space. The over-identifying restrictions suggest that the representative household is equally averse to variations in consumption and real money holdings. Finally, a forward-looking interpretation of the short-run dynamics, assuming quadratic adjustment costs, cannot be rejected by the data.

Date: 2001-01
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Citations: View citations in EconPapers (6)

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Journal Article: The representative household’s demand for money in a cointegrated VAR model (2000)
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