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Is the US demand for money unstable?

B. Rao and Saten Kumar

Applied Financial Economics, 2011, vol. 21, issue 17, 1263-1272

Abstract: The demand for money (M1) for the US is estimated with annual data from 1960 to 2008 and its stability is analysed with the extended Gregory and Hansen (1996b) test. In addition to estimating the canonical specification, alternative specifications are estimated which include a trend and additional variables to proxy the cost of holding money. Results with our extended specification showed that there has been a structural change in 1998 and the constraint that income elasticity is unity could not be rejected by subsample estimates. Short run dynamic adjustment equations are estimated with the lagged residuals from the Fully Modified Ordinary Least Squares (FMOLS) estimates of cointegrating equation and also with the General to Specific (GETS) approach.

Keywords: demand for M1; US; structural breaks; income elasticity; cost of holding money (search for similar items in EconPapers)
Date: 2011
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Working Paper: Is the US Demand for Money Unstable? (2009) Downloads
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DOI: 10.1080/09603107.2011.568395

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