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Money demand and the moderate quantity theory of money : an empirical investigation
| Content Provider | Semantic Scholar |
|---|---|
| Author | Stec, Jeffery A. |
| Copyright Year | 2000 |
| Abstract | The Moderate Quantity Theory (MQT) o f Money derives an adjustment process for the periods of disequilibrium between money supply and money demand from microfoundations. It specifies the inflation rate as a function of the disequilibrium between money supply and money demand as well as agents' expectations o f next period's inflation. We examine this theory as an alternative to other money demand models in the literature. First, agents' expectations of next period's inflation rate are modeled. .A median unbiased estimator for the lag dependent variable in an augmented Dickey-Fuller regression is estimated that allows for a time varying order o f integration. We find a unit root for the monthly U.S. inflation series from the mid 1970’s to the mid 1980’s. Before and after that time period, the U.S. inflation series is either stationary or nearly stationary. The inflation series is pseudo-differenced using the median unbiased parameter estimate to give a stationary time series. An expanding window ARMA approach is used to estimate the inflation data generating process as new data points are added. The MQT regressions give estimates o f the speed o f adjustment, the scale variable, and the opportunity cost parameters. The parameter estimates are significant and are the right sign. Income elasticities are about 0.5 for narrow measures o f money, but increase as the definition o f the monetary aggregate is broadened. The interest rate semi-elasticities retnain about the same at -0.03 across all the monetary aggregates. We compare the explanatory power o f various monetary aggregates and find that M l plus is the best monetary aggregate within the context o f our model. Chow tests are used to examine the parameter stability in our regressions; and, unlike many other money demand models, there is little parameter ii instability across the volatile time periods and various monetary aggregates. Possible endogeneity between the variables in the MQT regressions are also examined with little evidence o f that problem. The remainder o f this work duplicates the efforts made on U.S. post-War monthly data to the OECD G7 coimtries for the time period 1960-1997 using the quarterly data series found in OECD Main Economic Indicators Historical Statistics 1960-1997. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://etd.ohiolink.edu/!etd.send_file?accession=osu1488203857250162&disposition=inline |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
