International Evidence on Long-Run Money Demand
Luca Benati (),
Robert Lucas,
Juan Pablo Nicolini and
Warren Weber
No 587, Staff Report from Federal Reserve Bank of Minneapolis
Abstract:
We explore the long-run demand for M1 based on a dataset comprising 38 countries and relatively long sample periods, extending in some cases to over a century. Overall, we find very strong evidence of a long-run relationship between the ratio of M1 to GDP and a short-term interest rate, in spite of a few failures. The standard log-log specification provides a very good characterization of the data, with the exception of periods featuring very low interest rate values. This is because such a specification implies that, as the short rate tends to zero, real money balances become arbitrarily large, which is rejected by the data. A simple extension imposing limits on the amount that households can borrow results in a truncated log-log specification, which is in line with what we observe in the data. We estimate the interest rate elasticity to be between 0.3 and 0.6, which encompasses the well-known squared-root specification of Baumol and Tobin.
Keywords: Long-run money demand; Cointegration (search for similar items in EconPapers)
JEL-codes: C32 E41 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2019-06-18
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
https://www.minneapolisfed.org/research/sr/sr587.pdf Full text (application/pdf)
Related works:
Journal Article: International evidence on long-run money demand (2021) 
Working Paper: International Evidence on Long-Run Money Demand (2017) 
Working Paper: International Evidence on Long Run Money Demand (2017) 
Working Paper: International Evidence on Long Run Money Demand (2016) 
Working Paper: International Evidence on Long Run Money Demand (2016) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:587
DOI: 10.21034/sr.587
Access Statistics for this paper
More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Kate Hansel ().