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A Closer Look at Long Run Money Demand

Author

Listed:
  • Alfred A. Haug

    (York University, Canada)

  • Julie Tam

    (Stanford University, USA)

Abstract
We study annual United States data from 1869 or 1900 to 1999. We find evidence for a well-specified and stable model of money demand with data from 1946 to 1999. We carry out diagnostic and stability tests, including nonlinearity tests. A linear cointegration model with the monetary base performs better than a model with M1. A specification with M2 is not supported. We use real GNP as the scale variable and a short term interest rate as the opportunity cost measure. We estimate an income elasticity of .86 and an interest rate elasticity of -.44 for the monetary base.

Suggested Citation

  • Alfred A. Haug & Julie Tam, 2001. "A Closer Look at Long Run Money Demand," Working Papers 2002_09, York University, Department of Economics, revised Sep 2002.
    • Handle: RePEc:yca:wpaper:2002_09
    as

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    File URL: http://dept.econ.yorku.ca/research/workingPapers/working_papers/Haug_Tam.pdf
    File Function: Revised version, 2002
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    References listed on IDEAS

    as
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    Cited by:

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    2. Alfred A. Haug, 2006. "Canadian Money Demand Functions: Cointegration‐Rank Stability," Manchester School, University of Manchester, vol. 74(2), pages 214-230, March.

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    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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