 Modelling Short-run Money Demand for the USApplied Economics and Finance, 2017, vol. 4, issue 5, 9-20 Abstract: There is a vast amount of empirical evidence concerning the cointegrating relationship between money demand, some kind of interest rate and income. In contrast to this, short-run dynamics are still opaque. In the existing literature, the return to steady state is modeled quite differently. The range goes from simple error correction models to non-linear approaches. We herewith propose a method for considering not only disequilibria between money demand and its steady state for the last period only, but also for such of the recent past in a parsimonious and economically meaningful way. As different from multicointegration, weights for cumulating steady-state deviations are geometrically decreasing, the more they are located in the past. This model possesses an ARMA (1,1) representation and leads to an ARMAX-model, if combined with a conventional error correction model. This approach is shown to track money demand short-run dynamics better and more parsimoniously than partial-adjustment models. Keywords: short-run money demand; cumulative error-correction model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:rfa:aefjnl:v:4:y:2017:i:5:p:9-20 Access Statistics for this article More articles in Applied Economics and Finance from Redfame publishing Contact information at EDIRC. |
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