CANADIAN MONEY DEMAND FUNCTIONS: COINTEGRATION‐RANK STABILITY*

Alfred Haug

Manchester School, 2006, vol. 74, issue 2, 214-230

Abstract: This paper applies new tests for cointegration (Chao and Phillips, Journal of Econometrics, Vol. 91 (1999), pp. 279–304) and for cointegration‐rank stability with unknown change point (Quintos, Journal of Econometrics, Vol. 82 (1998), pp. 289–315) to Canadian money demand. Historical data of Metcalf et al. (Canadian Journal of Economics, Vol. 31 (1998), pp. 104–124) back to 1872 are used. The paper also considers shorter spans starting in 1957 and 1968 instead. The results show that a specification with M1 has the most rank stability. The rank does not fall below one and cointegration is present at all times in the full samples and also in the subsamples. However, additional cointegrating relations enter the vector error‐correction system for all samples.

Date: 2006
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