Survey of Literatureon Demand for Money: Theoretical and Empirical Work with Special Reference to Error-Correction Models
A stable money demand forms the cornerstone in formulating and conducting monetary policy. Consequently, numerous theoretical and empirical studies have been conducted in both industrial and developing countries to evaluate the determinants and the stability of the money demand function. This paper briefly reviews the theoretical work, tracing the contributions of several researchers beginning from the classical economists, and explains relevant empirical issues in modeling and estimating money demand functions. Notably, it summarizes the salient features of a number of recent studies that applied cointegration/error-correction models in the 1990s, and it features a bibliography to aid in research on demand for money.
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III Empirical Analysis
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alternative assets analyze the demand approach Arize Bank Boughton broad money BSMs Chow Yes cointegrating vectors consumer demand theory cost of holding Cuthbertson deﬁned deﬁnition deﬂator demand for money demand for real deposits Deutsche Bundesbank divisia domestic dummy Econometric equation equilibrium Ericsson error-correction estimating money demand exchange rate expected inﬂation expected rate ﬁinction ﬁnancial assets ﬁrst framework Friedman Goldfeld Hendry holding money income inﬂuence Integration Test(s International Monetary Fund Johansen John Eatwell Journal of Economic Judd and Scadding lagged Laidler ln real log M1 log real long-run Milbourne monetary aggregates money demand function money holdings money stock narrow money nominal Open Economy opportunity cost PAMs Paper partial adjustment models portfolio precautionary demand quantity theory Quarterly rate of inﬂation real GDP real M2 real money balances scale variable signiﬁcant speciﬁcation stable store of value studies theoretical theory of money transactions demand United Kingdom wealth