The Demand for M1 in the United States: A Commenton Baba, Hendry, and Starr

James Boughton

No 1993/024, IMF Working Papers from International Monetary Fund

Abstract: A recent paper by Baba, Hendry, and Starr presents an error-correction model of the demand for M1 in the United States, which shows a dramatic improvement in both fit and stability over earlier models. This note estimates an alternative model with the same data set and draws two conclusions: that the improvements are due more to the use of complex dynamics than to the introduction of variables representing financial innovation, and that some of the economic properties are not robust with respect to minor changes in specification.

Keywords: WP; standard error; Bhs equation; Bhs interest-rate effect; Bhs model; steady-state elasticity; interest elasticity; Demand for money; Short term interest rates (search for similar items in EconPapers)
Pages: 10
Date: 1993-03-01
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Citations: View citations in EconPapers (3)

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