Dynamic panel cointegration approaches to the estimation of money demand functions

Sangjoon Jun

Global Economic Review, 2004, vol. 33, issue 3, 23-42

Abstract: This paper investigates properties of the money demand functions of Group of Six (G6) member countries (Canada, France, Italy, Japan, U.K., and U.S.) using the estimation and inference techniques of panel cointegration. Empirical analyses are conducted by estimating money demand equations of G6 countries individually and as a whole, allowing heterogeneity in individual specific fixed effects across countries through dynamic, nonstationary panel estimation techniques. By using recently developed panel cointegration techniques, the paper contributes to the literature of money demand studies by improving the power performance of the relevant estimation and inference procedures. It reports fully modified OLS (FMOLS) estimation results of the money demand model for different data frequencies, to find varying signs and magnitudes of real income, interest rates and inflation elasticities of money demand for G6 nations.

Keywords: money demand function; panel unit root and cointegration tests; fully modified OLS (FMOLS) estimation (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1080/12265080408449853

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