Household‐sector Money Demand for the Uk

Abstract

We test for the existence of a long-run money demand relationship for the UK involving household-sector Divisia and simple sum monetary indexes for the period from 1977 to 2008. We construct our Divisia index using non-break-adjusted levels and break-adjusted flows following the Bank of England. We test for cointegration between the real Divisia and simple sum indexes, their corresponding opportunity cost measures, real income and real share prices. Our results support the existence of a long-run money demand relationship for both the Divisia and simple sum indexes. Copyright � 2010 The Authors. Journal compilation � 2010 Blackwell Publishing Ltd and The University of Manchester.

Breaks in the UK Household Sector Money Demand Function

“…See, for example, Hendry and Ericsson (); Drake and Chrystal (, ), Elger and Binner (), Bissoondeeal et al . (). Similar to many developed economies, the instability in the UK money demand function is also well documented (see, for example, Hall et al ., ).…”

“…The empirical literature on the demand for money in the UK is also fairly large. See, for example, Hendry and Ericsson (1991); Chrystal (1994, 1997), Elger and Binner (2004), Bissoondeeal et al (2010). Similar to many developed economies, the instability in the UK money demand function is also well documented (see, for example, Hall et al, 1989).…”

“…For example, Fiess and MacDonald (2001) employ I(2) cointegration techniques; some papers have introduced the behaviour of the stock market in the money demand function (e.g. Bissoondeeal et al, 2010); some papers have included housing wealth (e.g. Beyer, 2009Beyer, , 2010; and some have included exchange rates (Bahmani-Oskooee and Barry, 2000).…”

“…Bissoondeeal et al . () investigate whether or not the UK money demand function suffers from omitting a stock market variable.…”

Sectoral Money Demand Behaviour and the Welfare Cost of Inflation in the UK

“…Bissoondeeal et al . () find long‐run money demand relationships for the UK household sector for both a Divisia and a simple sum (broad) measure of money. They report four estimates of the coefficient on the scale variable that are each significantly different from unity—the highest of which is 1.36.…”