UK Money Demand 1873-2001: A Cointegrated VAR Analysis with Additive Data Corrections

Heino Bohn Nielsen
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Heino Bohn Nielsen: Institute of Economics, University of Copenhagen

No 04-21, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper performs a system cointegration analysis of UK money demand based on real money, real income, the opportunity cost of holding money, and inflation for the period 1873 - 2001. As a novelty we account for the effect of the world wars by estimating additive data corrections, allowing observations during the two world wars to be fundamentally different from peace-time observations. We find a single long-run relation, which links velocity to opportunity costs, and a strong link from excess money to inflation. The long-run structures are reasonably stable, although the information in the data is not evenly distributed over time. In particular, it seems important to include information from the episodes of large variations in velocity and interest rates around 1960-1980.

Keywords: United Kingdom; money demand; cointegration; additive outlier; level shift (search for similar items in EconPapers)
JEL-codes: C32 E31 E41 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2004-10
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0421

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