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Long-run Demand for M1 Long-run Demand for M1
| Content Provider | Semantic Scholar |
|---|---|
| Author | Hendry, Scott Engert, Walter Longworth, Dave Selody, Jack |
| Copyright Year | 1995 |
| Abstract | This paper is intended to make the results of Bank research available in preliminary form to other economists to encourage discussion and suggestions for revision. The views expressed are solely those of the author. No responsibility for them should be attributed to the Bank of Canada. Acknowledgments I would like to thank Walter Engert, Dave Longworth, Jack Selody and the seminar participants at the Bank of Canada for their many helpful discussions and suggestions. Of course, any errors are my own. Abstract The goal of this paper is to investigate and estimate long-run relationships among M1, prices, output and interest rates, with a view to determining if there is a stable relationship that can be interpreted as long-run money demand. The paper uses a maximum-likelihood multiple-equation cointegration technique, developed by Johansen, to fit a system of equations to the data. One finding is that long-run, but not short-run, unitary price elasticity is easily accepted, while the income elasticity is close to one-half. The coefficients on the deviation of money from its long-run equilibrium in the vector error-correction model imply that when M1 is above its long-run demand, money will decrease and prices increase to restore long-run equilibrium. The effects of the deviation on output and interest rates are insignificant, pointing to the weak exogeneity of these variables. The implication of the results is that all the adjustment to return the economy to monetary equilibrium comes from fluctuations in money and prices. However, this does not preclude the possibility that changes in the stock of money may have short-run real effects. Indeed, the results suggest that changes in M1 lead short-term changes in output. Résumé Dans cette étude, l'auteur procède à l'analyse et à l'estimation des relations à long terme entre M1, les prix, la production et les taux d'intérêt, en vue de déterminer s'il y a entre ces variables une relation stable qui peut être interprétée comme une fonction de demande de monnaie à long terme. À cette fin, l'auteur cherche à rattacher un système d'équations aux données en recourant à la technique de cointégration proposée par Johansen, en l'occurrence celle à équation multiple axée sur la méthode du maximum de vraisemblance. L'une des conclusions que tire l'auteur est que, à long terme, une élasticité-prix égale à l'unité se vérifie aisément, ce qui n'est pas le cas à court terme, tandis que l'élasticité-revenu s'approche de un demi à long terme. … |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://econwpa.wustl.edu/eps/mac/papers/9511/9511001.pdf |
| Alternate Webpage(s) | http://www.bankofcanada.ca/publications/working.papers/1995/wp95-11.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
