Monetary trends in the UK and the USA from 1874 to 2020: a nonlinear approach to money demand

Juan Andrés Rodriguez
Authors registered in the RePEc Author Service: Alvaro Escribano

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: Since the influential works of Friedman and Schwartz (1963, 1982) on the monetary history of the United States of America and the United Kingdom from 1876 to 1975, there has been a great concern in the literature about the instability of money demand functions when monetary trends are explored historically. Several authors, at the end of the 1980s and during the 1990s, reconsidered their statistical approach based on the distinction between money demand in the long-run (cointegration) and money demand in the short-run (error-correction models). Recently, using M1 as the measure of money, Benati, Lucas, Nicolini and Weber (2021) have shown, for a shorter and more recent period of time, that there are stable long-run money demands for a long list of countries. However, to date there are no studies on whether a stable long-run and short-run money demand equations exists for the entire monetary history of the US and the UK. By means of a nonlinear cointegration and a nonlinear error-correction approach, this paper goes beyond the work of its predecessors and presents evidence of a well-specified, long-run and short-run money demands of real broad monetary balances in these two countries from 1874 to 2020. The estimated cubic-polynomial cointegrations (US and UK) for the long-run money demand specification, and the linear (US) and cubic equilibrium correction (UK) for the short-run money demands, are shown to be stable based on an appropriate measure of the opportunity cost of holding money.

Keywords: Money; Demand; Nonlinear; Cointegration; Nonlinear; Error; Correction; Models; Cubic; Polynomial; Cointegration; Cubic; Polynomial; Equilibrium; Correction; Financial; Innovation; Money; Demand; Stability; Opportunity; Cost; Of; Holding; Money (search for similar items in EconPapers)
JEL-codes: E41 E43 E47 E51 (search for similar items in EconPapers)
Date: 2023-07-20
New Economics Papers: this item is included in nep-his and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://e-archivo.uc3m.es/rest/api/core/bitstreams ... 853b5b646c62/content (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:37911

Access Statistics for this paper

More papers in UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía
Bibliographic data for series maintained by Ana Poveda ().