Recent developments in understanding the demand for money

Duca, John V.; VanHoose, David D.

doi:10.1016/j.jeconbus.2004.01.001

Cited by 79 publications

(45 citation statements)

References 136 publications

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“…Duca (2000) and Hafer and Wheelock (2001) document a deviation of M2 velocity from its long-run trend in the early 1990s, sometimes characterized as the missing M2 episode. Duca and VanHoose (2004) state that one response was to replace M2 with MZM, consistent with the view that heightened substitution between small time deposits and mutual funds other than money market mutual funds (MMMFs) largely accounted for the instability in M2 velocity. But as they go on to discuss, M2 and MZM velocity encountered problems in the early 2000s, plunging in ways not in line with opportunity cost variables.…”

Section: Introductionmentioning

confidence: 53%

“…Specifying a nonzero own rate of money is critical for broader aggregates, as argued by Carlson et al (2000). As Duca and VanHoose (2004) discuss, the issue gains importance for narrow measures as well, given the spread of interest-bearing transactions deposits resulting from the Depository Institutions Deregulation and Monetary Control Act (DIDMCA).…”

Section: Velocity and Opportunity Costmentioning

confidence: 99%

“…7 The estimated interest rate semi-elasticities for M1S are surprisingly similar across the different interest rate measures. Duca and VanHoose (2004) discuss a movement in empirical research within money demand, from using short-term to long-term interest rates. They argue that one can justify using long-term rates if expectations of future short-term rates have a larger effect on money demand through affecting medium-run to long-run money management practices than short-term rates have on money demand through substitution effects via short-duration financial substitutes.…”

Section: M1 M1rs M1smentioning

confidence: 99%

“…Perhaps one reason for the robustness of our estimates across interest rates lies in the explicit attention to interest paid on transactions deposits in measuring opportunity cost. Duca and VanHoose (2004) point to this aspect as either ignored or not handled well by many studies of M1 demand.…”

Section: M1 M1rs M1smentioning

confidence: 99%

See 3 more Smart Citations

U.S. Narrow Money for the Twenty‐first Century

2006

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This study focuses on sweep programs in establishing conceptually appropriate and reliable measures of narrow money. We propose the aggregates M1RS ¼ M1 þ holdings of funds swept in retail sweep programs, and M1S ¼ M1RS þ holdings of funds swept in commercial demand deposit sweep programs. Based on quarterly observations from 1959:1-2002:4, cointegration tests indicate the existence of long-run relationships between the velocity of M1S and the corresponding opportunity cost of holding money, using either short-term or long-term interest rates. Tests find weaker evidence for M1RS and little support for MZM. (JEL E41, G21)

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Section: Introductionmentioning

confidence: 53%

Section: Velocity and Opportunity Costmentioning

confidence: 99%

Section: M1 M1rs M1smentioning

confidence: 99%

Section: M1 M1rs M1smentioning

confidence: 99%

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U.S. Narrow Money for the Twenty‐first Century

2006

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“…However, much of the recent literature on monetary economics seems to de-emphasize the importance of money demand (Duca and VanHoose, 2004). Despite the consensus that money demand function has little role under an interest-rate-based (Taylor-rule type) monetary policy, it is still believed that money demand is important for both macroeconomic model and monetary policy.…”

Section: Introductionmentioning

confidence: 99%

Long-run estimates of money demand: new evidence from East Asian countries and the presence of structural breaks

Apergis

2015

Applied Economics

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Conventionally, the money demand function is estimated using a linear regression of the logarithm of money demand on a number of variables. In this article, we aim to estimate the long-run properties of money demand specification for a number of East Asian economies and within a panel framework with the presence of structural breaks. Various country-specific coefficients are allowed to capture inter-country heterogeneities. Consistent with theoretical postulates, it is found that (a) the demand for money in the long-run positively responds to real income and inversely to the interest rate spread, inflation, the real effective exchange rate and the US real interest rate; (b) the long-run income elasticity is greater than unity; and (c) both the currency substitution and capital mobility hypotheses hold. The empirical findings in this article can provide useful policy guidelines to the East Asian countries' central banks in their quest for price stability. If one of the primary objectives of these countries is to minimize price instability, they should avoid creating unnecessary disequilibrium in the money market, while the employment of cointegration with the presence of structural breaks clearly recommends to central banks to use the supply of money to attain price and macroeconomic stability.

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Money demand function estimation by nonlinear cointegration

Bae

Jong

2007

J of Applied Econometrics

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SUMMARYConventionally, the money demand function is estimated using a regression of the logarithm of money demand on either the interest rate or the logarithm of the interest rate. This equation is presumed to be a cointegrating regression. In this paper, we aim to combine the logarithmic specification, which models the liquidity trap better than a linear model, with the assumption that the interest rate itself is an integrated process. The proposed technique is robust to serial correlation in the errors. For the US, our new technique results in larger coefficient estimates than previous research suggested, and produces superior out-of-sample prediction. JEL Classification: E41; C22

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Recent developments in understanding the demand for money

Cited by 79 publications

References 136 publications

U.S. Narrow Money for the Twenty‐first Century

U.S. Narrow Money for the Twenty‐first Century

Long-run estimates of money demand: new evidence from East Asian countries and the presence of structural breaks

Money demand function estimation by nonlinear cointegration

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