Note on the Stability of Long-Run Money Demand: Is the Interest Elasticity Really Constant?

Ryuzo Miyao

No 94, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This note reexamines the recent evidence by Hoffman, Rasche and Tieslau (1995) that cointegrating M1 demand relationships are stable in postwar industrial countries particularly when the restriction of a unit income elasticity is imposed. We apply Gregory and Hansen's (1996) residual-based test for cointegration with a possible break in the cointegrating vector in an unknown timing. Under a bivariate model where the restriction is imposed, the empirical evidence consistently suggests the possibility of a shift in the interest elasticity in postwar U.S., Canada, and (weakly) Japan.

Keywords: Interest rate; Elasticity; Cointegration; Money (search for similar items in EconPapers)
JEL-codes: E41 E43 (search for similar items in EconPapers)
Pages: 19 pages
Date: 1998-05
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:94

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