The Problem of Identification of the Money Demand Function

Charles Bischoff and Halefom Belay

Journal of Money, Credit and Banking, 2001, vol. 33, issue 2, 205-15

Abstract: Cooley and LeRoy (1981) have argued that if random shifts in money demand are at least partially accommodated by the Federal Reserve, then there is no obvious way to identify the money demand function for the purposes of estimation. We argue that this is not correct, and that identification is in fact straightforward, provided that the monetary authority reacts to at least one variable not in the money demand function. If the monetary authority looks at "everything" in making its policy, this condition is likely to be fulfilled.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:33:y:2001:i:2:p:205-15

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