On the Reinterpretation of Money Demand Regressions

Mark Taylor

Journal of Money, Credit and Banking, 1994, vol. 26, issue 4, 851-66

Abstract: A stylized fact concerning estimated money demand relationships is that lagged dependent variables have high explanatory power and large estimated coefficients, which is hard to explain at a theoretical level. Marvin S. Goodfriend (1985) suggests that this may be due to the presence of serially correlated measurement errors in the independent variables. The author demonstrates how consistent estimates of the short-run demand function can be obtained even if the Goodfriend hypothesis is accepted and also how the hypothesis might be tested. Application of the suggested test using the Goldfeld (1973) data set leads to decisive rejection of the hypothesis. Copyright 1994 by Ohio State University Press.

Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:26:y:1994:i:4:p:851-66

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