No full-text available
To read the full-text of this research,
you can request a copy directly from the author.
International comparisons of money demand
Abstract
Many studies of the demand for money, covering a wide variety of economies, have demonstrated the importance of financial innovations and shifts in monetary policy regimes, but they have also illustrated the difficulty of measuring and assessing such changes. Because innovations and regime shifts have differed markedly across countries, international comparisons can help identify their effects. This paper reviews the literature on money demand comparisons, focusing primarily on industrial countries. It finds that innovations have had widespread effects, but also that the demand for money is not generally less stable now than it was before those changes occurred.
... Los métodos de estimación van desde mínimos cuadrados ordinarios (que constituye un error de especificación si las series contienen al menos una raíz unitaria), máxima verosimilitud, y cointegración lineal y no lineal. Como señalan Hafer y Hein (1984), Chowdhury (1989), Boughton (1992) y Moghaddam (1997), la evidencia empírica sugiere que la elasticidad de la tasa de interés ha disminuido o ha permanecido constante en la medida en que las innovaciones financieras se han venido introduciendo. Esto contrasta con la hipótesis de Gurley-Shaw. ...
... Los resultados de trabajos empíricos con relación al tema de una velocidad constante no han sido concluyentes. Se ha conseguido evidencia de que la velocidad es mayor en países en desarrollo y más estable en economías más avanzadas (Arize, 1990;Boughton, 1992;Varella, 2002). ...
Dado que los resultados obtenidos en la literatura no muestran consenso sobre el im- pacto de las innovaciones financieras en la demanda de dinero, este trabajo investiga sobre la estabilidad de la demanda de dinero de largo plazo en Venezuela en presencia de innovaciones financieras durante el periodo: 1984Q1- 2008Q4 mediante un análisis de cointegración. Para ello, se construye la razón circulante/depósitos (CD) y una varia- ble ratchet (RCD), a partir de la anterior, a objeto de medir el efecto de las innovaciones financieras. La evidencia empírica revela que existe una relación de equilibrio de largo plazo entre el logaritmo de los saldos reales, el logaritmo del nivel del ingreso real, la tasa de interés real, la tasa de inflación, la tasa de depreciación de la moneda local, y las innovaciones financieras, pudiendo interpretarse esta relación como una demanda dine- ro. Esto sugiere que cuando se introducen nuevos instrumentos financieros, se produce una disminución en la demanda de saldos reales, lo cual induce a pensar que los agentes económicos realizan una reasignación de sus recursos que afecta la composición del portafolio, y por tanto, la demanda de dinero, siendo este evento muy propio de econo- mías caracterizadas por elevadas y persistentes tasas de inflación, problemas de balanza de pagos, inestabilidad en el mercado cambiario e incertidumbre económica y política.
... Extending the time period to 1986, Bordo and Jonung (1990) confirms the previous finding that institutional development is a significant determinant of the long-run money demand function in the five countries. Through international comparison, Boughton (1992) argues that the institutional factor not only is an important determinant of money demand, but its short-run effect differs across countries. Using cointegration techniques in the same five countries, Bordo et al. (1997) as well as Siklos (1993) respectively confirm that the traditional money demand function consisting of real income and the nominal interest rate needs to be augmented with institutional change proxies to achieve long-run stability. ...
A notable feature of empirical studies on the unknowns about future economic events that lead to precautionary demand for money among economic agents is that very few studies put emphasis on the role of institutional development in mediating the relationship between them. To overcome this shortcoming, this study examines the threshold effect of institutional development on the relationship between precautionary demand for money and economic uncertainty, without neglecting the roles of income, the interest rate and the exchange rate in the money demand function in 28 economies. The empirical results from the panel threshold methods demonstrate significant threshold effect for these determinants, especially for economic uncertainty, which indicate that a better understanding that the relationship between the precautionary demand for money and economic uncertainty may be contingent on institutional development could help policy makers fine-tune the money demand function in a more precise manner to achieve the optimal liquidity provision under economic uncertainty over time.
... To measure impact of exogenous variables on money demand, monetary aggregates M1 and M2 are considered as dependent variables whereas four other variables, real income, REER, call money rates and inflation rate have been taken as explanatory variables. The definition of money is different for different economies (Boughton, 1992) and different aggregates and components are used to measure money demand. Both narrow (M1) and broad monetary aggregate (M2) are used separately as endogenous variables. ...
Purpose
This paper aims to examine association of money demand with key macroeconomic variables in Pakistan. The paper also investigates the asymmetric effect of real effective exchange rate (REER) on money demand.
Design/methodology/approach
The study employs both linear autoregressive distributed lag (ARDL) and non-linear autoregressive distributed lag (NARDL) model. Annual data from 1970 to 2018 is used which is subjected to non-linearity through partial sum concept. Empirical analysis is conducted to prove if money demand is influenced by currency appreciation or depreciation, for long and short run.
Findings
Cointegration test indicates existence of a long-run relationship between money demand and its determinants. Results from NARDL model suggest negative relation between money demand and inflation in long and short run. Real income shows positive but a very minimal and insignificant effect on money demand in long and short run. Impact of call money rates is statistically significant and negative on M1 and M2. Wald tests and differing coefficient sign confirm presence of asymmetric relation of REER in long run with M2, whereas in short run we observe a linear, symmetrical relation of REER with M1 and M2. Stability diagnostic tests (CUSUM and CUSUMSQ) verify stability of M2 demand model in Pakistan.
Practical implications
Results signify that role of money demand is imperative as a monetary policy tool and it can be utilized to achieve objective of price stability. Additionally, exchange rate movements should be critically examined by monetary authorities to avoid inflationary pressures resulting from an increase in demand for broad monetary aggregate.
Originality/value
The paper contributes to scarce monetary literature on asymmetrical effects of exchange rate in Pakistan. Impact of variables has been studied through linear approach, but this paper is unique since it attempts to explore non-linear relationships.
... Further diagflostic checking indicated that the models suffered from significant serial correlation problem evidenced by low values of Durbin-Watson (DW) statistics. Moreover, the Chow-test results for both M2 and M2+ indicated functional instabilities, which was perhaps due to the excessive restriction on the dynamic specification of the PAM (Boughton, 1992). ...
In this paper, using the techniques in cointegration theory, we find strong support for the existence of a long-run equilibrium relationship among money demand variables in Canada. Additionally, when the conventional partial adjustment model (PAM) is compared to the two-stage error correction model (ECM), the latter approach is found to perform better, with M2+ showing better results than M2. Our results are also found to be in line with other studies from the U.K. and the U.S.A. These findings provide rationale for further in-depth studies on broader monetary aggregates to formulate sound monetary policy in Canada. [E41]
... e difficult. One way to identify these is the induction of additional dummies in the model that will serve to capture potential shifts in the velocity of the monetary aggregate, which can affect the long run behavior of the variable. In some other cases, it may be necessary to incorporate direct quantified variables to proxy shifts in money demand. Boughton (1992) presents the sources of disturbances that can affect the elasticities of variables in the long run equation. Inflation expectations, altering over time, is the first important factor that may affect real return of assets which is an important element of the money demand equation. Inflationary expectations is generally proxied by the inf ...
This paper analyzes broad money demand in Turkey between 1987 and 2001, a period characterized by a process of financial sector liberalization, implemented using various structural reforms and deregulations. It presents the historical background and the pace of liberalization, accompanied by a discussion on main economic indicators. It gives a brief summary on theory for the analysis of money demand and constructs an error correction model for M2X using quarterly data, where the long run relationship is established using real income, interest rate on deposits, interest rate on government securities, inflation rate and real exchange rate. The results show that, both exchange rate and inflation rate have substantial impact on the Turkish broad money demand.
Two versions of the P-star model (P*) of inflation are tested for Belgium, France, Germany and the Netherlands for the period 1973.I–1992.IV. In the first, conventional version the statistical links between national monetary aggregates and domestic inflation are examined. Conversely, the chosen set up in the second version allows for symmetric monetary spill-over effects between these countries. The estimates suggest that inflation in Belgium and the Netherlands is nowadays fully determined by the European price gap and not by domestic monetary conditions, while the relative importance of the European price gap is increasing in the case of France and Germany. All in all the European price gap provides an accurate indicator for future inflationary tendencies in all four countries. Moreover, we find that the European inflation equation is stable over the sample period. Taken together these results suggest that (implicit) targeting of a European monetary aggregate in addition to explicitly targeting the German money supply may become necessary to achieve and maintain price stability in Europe in the near future.
Money demand stability is a crucial issue for monetary policy efficacy, and it is particularly endangered when substantial changes occur in the monetary system. By implementing the ARDL technique, this study intends to estimate the impact of money demand determinants in Italy over a long period (1861–2011) and to investigate the stability of the estimated relations. We show that instability cannot be excluded when a standard money demand function is estimated, irrespectively of the use of M1 or M2. Then, we argue that the reason for possible instability resides in the omission of relevant variables, as we show that a fully stable demand for narrow money (M1) can be obtained from an augmented money demand function involving real exchange rate and its volatility as additional explanatory variables. These results also allow us to argue that narrower monetary aggregates should be employed in order to obtain a stable estimated relation.
The demand for money has been at the centre of monetary econometrics. The policy debate has focused on the stability issue. To investigate this the present paper presents an overview of 400 estimated demand-for-money equations in the EC countries and G7 member states taken from the literature. The results of this survey suggest, firstly, serious doubts on the stability of the demand for money and, secondly, a remarkable evolution in econometric methodology in an attempt to improve the statistical evidence. Thirdly and important from a policy perspective, the analysis of the reported standard errors of the equations shows that among the large European countries Germany has the most stable money demand.
This paper surveys a selected number of studies that evaluated the demand for money using the error-correction model approach in the 1990s across a range of industrial and developing countries. It briefly presents issues relevant to modeling and estimating the demand for money; and synthesizes information concerning variables, data period and frequency, unit root and cointegration techniques, stability tests, and findings in a tabular form. In addition, it presents estimated long-run income elasticity and elasticities or semi-elasticities for opportunity cost and other variables in a comparable framework. It aims to provide a reference tool for future research on demand for money in various countries. Copyright 2001, International Monetary Fund
We study common features in the income velocity of money, income, and interest rates for Canada, the U.S., the U.K., Sweden and Norway using annual data from 1870. The recently developed and refined techniques of testing for cointegration are employed.
The evidence suggests there is a unique long-run relationship in velocity but not in income and interest rates. Moreover, we find that only a model which includes institutional change proxies is properly specified. We argue that the evidence is best interpreted in the context of common historical developments in the respective countries' financial systems.
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.
This paper examines monetary concepts and definitions. It notes that approaches to monetary analysis, and the concept of money itself, have been undergoing substantial change in many countries due in large part to recent innovation, which has affected financial markets, financial instruments, and financial institutions. As a result, many countries increasingly tend to focus on multiple creators and instruments of money as opposed to just currency and transferable demand deposits. This fact is borne out by the paper`s survey of national practices in the selection and grouping of instruments in money measures. The paper concludes that the emerging trend towards broader concepts of money implies the need for some rethinking of traditional notion of money measures.
This paper examines the demand for money under conditions of very high inflation in Argentina, Bolivia, Brazil, Chile and Peru during the 1970s and 1980s. We test whether the monetary and inflationary experiences of these countries can be adequately characterized by the Cagan (1956) model, using an econometric procedure which is not reliant on any particular assumption concerning expectations formation except that forecasting errors are stationary. We also examine the importance of foreign asset substitution in domestic portfolios.
Forecasting models are estimated using annual data for the income velocity of money in seven major industrial countries. The predictions are conditional on the realized value of the long-term domestic government bond rate. These forecasts did not deteriorate over the period 1980-88, compared with the earlier postwar period. Velocity of M1 is found to be very interest elastic in almost all countries; velocity of M2, less so. The specifications (based on Kalman filters) point to a nonconstant trend in velocity, raising questions about the assumptions required for the cointegration techniques used in other research on money demand.
Traditional specifications of money demand have been commonly plagued by persistent overprediction, implausible parameter estimates, and highly autocorrelated errors. This paper argues that some of those problems stem from the failure to account for the impact of financial innovation. We estimate the demand for money for ten developing countries, employing various proxies for financial innovation, and provide an assessment of the relative importance of this variable. We find that financial innovation plays an important role in determining money demand and its fluctuations, and that the importance of this role increases with the rate of inflation.
The empirical findings generally reject the hypothesis that the monetization process has significantly caused structural instability in the money demand functions in these Latin American developing economies. Therefore, the resulting unfavourable environment facing stabilization policy in these economies should not be blamed on their monetization process. Rather, irresponsible monetary policy and the consequent erratic price behaviour seems to be among the major causes of money demand instability particularly in Brazil and Peru. Indeed, if anything, the monetization process is conducive to economic growth and stability as it would set free idle productive resources from the non-monetized sector that, if properly channeled, would help promote economic growth and development. Therefore, these countries should include the private sector to engage in more monetary transactions and support any systematic effort to enlarge the sphere of their monetized sector.-from Author
Journal: Statistiques et études financières
This paper examined the cointegrating properties of narrow money demand. Results suggest income and interest rate are sufficient for the formulation of a long-run stable demand for money in Australia, Austria, Finland, Italy, UK, and US. However, for Canada, Germany, and Switzerland, the nominal effective exchange rate should be incorporated.
Using the Adaptive Expectations Model and the method of minimising quadratic loss function this paper explores the relevant scale and opportunity cost variables in the money demand function of six developing countries of Asia. It is found that substitution of permanent income for measured income and of expected inflation for actual inflation does not generally improve the estimates of money demand function. Furthermore, the demand for money is found to be sensitive to changes in interest rate for some countries.
The long-run properties of money demand functions in the large industrial countries are examined under the hypothesis that the long-run functions have been stable but that the dynamic adjustment processes are more complex than those represented in most earlier models. The results broadly support this hypothesis, but for certain aggregates they also call into question some basic hypotheses about the nature of the demand function, including, notably, that of homogeneity with respect to the price level.
Aggregate demand for M1 in the countries participating in the exchange rate mechanism (ERM) of the European Monetary System is shown to be a stable function of ERM-wide income, inflation, interest rates, and the ECU-dollar exchange rate. Particularly noteworthy is the rapid dynamic adjustment, in contrast to the implausibly slow adjustment implied by most single-country estimates. These results, if robust, suggest that, even at the present stage of economic and monetary integration, a European central bank might be able to implement monetary control more effectively than the individual national central banks.
The paper analyzes currency substitution--the demand for foreign money--in Argentina, Mexico, and Uruguay. Domestic residents usually seek foreign currency because trade and tourism require the use of foreign exchange. In Argentina, Mexico, and Uruguay, however, the demand for foreign exchange by domestic residents has gone well beyond the requirements of international trade and tourism. These countries have witnessed a sharp decline in real money balances denominated in domestic currency during periods of erratic inflation, large deficits in the balance of payments, and recurrent devaluation. So widespread is this phenomenon that many purely domestic sales and contracts within these countries are now frequently denominated in foreign rather than in domestic currency. The theoretical part of the paper develops a simple model to explain the role played by expectations of exchange rate fluctuations in the individual's decision to divide financial wealth between holdings of domestic and foreign money. Empirical evidence shows the quantitative importance, growth, and apparent irreversibility of currency substitution in these countries, as well as the speed at which this process is taking place. The evidence confirms that the appearance of currency substitution in these countries, characterized as they are by different economic structures, can be traced to the high and variable inflation rates they have experienced in recent years. Currency substitution influences the design and effectiveness of fiscal and monetary policy. In particular, this process limits the resources the government can mobilize by money creation and renders more difficult the control of domestic liquidity. For these reasons, policies must be designed to reduce or at least to prevent the further growth of currency substitution. For such policies to succeed, they must be credible; they must involve a net monetary contraction; and they must ensure an increase in the expected real rate of return of domestic money. /// Cette étude analyse la substitution de monnaie -- c'est-à -dire la demande de monnaie étrangère -- en Argentine, au Mexique et en Uruguay. Habituellement, les résidents d'un pays cherchent à se procurer des monnaies étrangères lorsque le commerce et le tourisme nécessitent l'utilisation de devises. Toutefois, en Argentine, au Mexique et en Uruguay, la demande de devises étrangères émanant des résidents dépasse de beaucoup les besoins du commerce extérieur et du tourisme. Ces pays ont enregistré de fortes diminutions de leurs encaisses monétaires réelles, libellées en monnaie nationale, pendant les périodes d'inflation erratique, de lourds déficits de balance des paiements et de dévaluations répétées. Ce phénomène est si généralisé que de nombreuses opérations purement intérieures effectuées dans ces pays -- ventes et contrats -- sont à présent souvent libellées en monnaie étrangère plutôt qu'en monnaie nationale. Dans la partie théorique de l'étude, l'auteur élabore un modèle simple pour expliquer le rôle joué par les anticipations relatives aux fluctuations du taux de change dans les décisions que prennent les agents économiques en vue de répartir les actifs financiers entre avoirs en monnaie nationale et avoirs en devises étrangères. L'observation des faits montre l'importance quantitative, la progression et l'irréversibilité apparente de la substitution de monnaie dans ces pays, ainsi que la rapidité de ce processus. Les faits confirment que l'apparition de ce phénomène dans ces pays, qui sont d'ailleurs caractérisés par des structures économiques différentes, peut être attribuée aux taux d'inflation élevés et variables qu'ils ont connus ces dernières années. La substitution de monnaie influe sur l'élaboration et sur l'efficacité de la politique budgétaire et monétaire. En particulier, ce processus limite les ressources que les pouvoirs publics peuvent mobiliser par la création monétaire et rend plus difficile la maîtrise de la liquidité intérieure. C'est pourquoi il faut concevoir des politiques propres à réduire la substitution de monnaie, ou du moins à l'empêcher de progresser davantage. Pour réussir, ces politiques doivent être crédibles; elles doivent comprendre une contraction nette de la masse monétaire et assurer une augmentation du taux réel escompté de rendement des avoirs en monnaie nationale. /// En este trabajo se analiza la sustitución de moneda --la demanda de moneda extranjera-- en Argentina, México y Uruguay. Los residentes del paÃs suelen querer moneda extranjera por necesitarla para fines de comercio y turismo. No obstante, en Argentina, México y Uruguay la demanda de moneda extranjera por los residentes respectivos va mucho más allá de las necesidades relacionadas con el comercio y el turismo internacionales. Dichos paÃses han experimentado una fuerte disminución en los saldos reales de dinero denominados en moneda nacional durante perÃodos de inflación errática, cuantiosos déficit en la balanza de pagos y repetidas devaluaciones. Tan extendido está ese fenómeno que muchas ventas y contratos estrictamente internos con frecuencia se denominan actualmente en dichos paÃses en moneda extranjera, en vez de en moneda nacional. En la parte teórica de este artÃculo se elabora un modelo sencillo para explicar la influencia de las expectativas de fluctuaciones del tipo de cambio en las decisiones para dividir la riqueza financiera entre dinero nacional y dinero extranjero. Los datos empÃricos indican la importancia cuantitativa, el crecimiento y la irreversibilidad aparente de la sustitución de moneda en los citados paÃses, asà como la rapidez con que está teniendo lugar ese proceso. Los datos confirman que la aparición de sustitución de moneda en los paÃses mencionados, caracterizados por estructuras económicas diferentes, puede atribuirse a las elevadas y variables tasas de inflación que han padecido en los últimos años. La sustitución de moneda influye en la formulación y la eficacia de las polÃticas fiscal y monetaria. En especial, este proceso limita los recursos que puede movilizar el gobierno mediante la creación de dinero y hace más difÃcil el control de la liquidez interna. Por ello, es preciso formular medidas de polÃtica mediante las cuales se pueda reducir la sustitución de moneda, o por lo menos impedir que siga aumentando. Para que dichas medidas den resultados deben inspirar confianza, representar una contracción monetaria neta y producir un aumento en la tasa prevista real de rentabilidad del dinero nacional.)
The demand for money is one of the most intensively investigated economic relationships, and one that has become increasingly important in the formulation and adaptation of programs of financial stabilization. This paper attempts to estimate a relatively simple formulation of the demand for money for the nineteen countries in the Middle Eastern Department of the Fund. To reflect the particular circumstances of these countries, national income is defined to exclude the oil sectors of their economies, where appropriate, and a number of other modifications to the basic data are made to improve the realism of the estimated relationship. A reasonably robust income elasticity was obtained across the nineteen countries in the model, with significant coefficients being obtained for eighteen; elasticity estimates clustered in the range of 1.25 to 1.50 for a broad definition of money, and in the range of 1.00 to 1.50 for narrow money. The inflation rate was used as the opportunity cost of holding money but proved statistically significant in only three of the nineteen countries. Simple lag formulations suggested that there may be some lagged response in these countries of the demand for money to its underlying determinants but did not indicate that an unlagged formulation would be very misleading where annual data were employed. When the data for the various countries were pooled, to obtain cross-section estimates, the results were less successful, even though a number of different country groupings were used for pooling purposes. Inflation variables were insignificant, and estimated income elasticities were generally significantly lower than in the individual country equations. /// La demande de monnaie fait partie des relations économiques faisant l'objet du plus grand nombre d'études et revêt une importance croissante dans la formulation et l'adaptation des programmes de stabilisation financière. Dans cette étude, les auteurs essaient d'estimer un modèle relativement simple de la demande de monnaie dans les dix-neuf pays du Département du Moyen-Orient du Fonds. Afin de mieux refléter la situation particulière de ces pays, la définition du revenu national exclut, lorsqu'il y a lieu, le secteur pétrolier de ces économies et un certain nombre de modifications sont apportées aux données de base en vue d'obtenir une estimation plus réaliste de la relation. Une élasticité du revenu raisonnablement forte est obtenue pour les dix-neuf pays étudiés dans le modèle, des coefficients significatifs étant obtenus pour dix-huit d'entre eux; les coefficients d'élasticité estimés se situent entre 1,25 et 1,50 pour la définition de la monnaie au sens large, et entre 1 et 1,50 pour la monnaie au sens étroit. Le taux d'inflation a été considéré comme coût d'option pour les détenteurs de monnaie mais ne s'est révélé significatif, sur le plan statistique, que pour trois pays seulement. Des formules à décalages simples indiquent qu'il pourrait y avoir dans ces pays une réaction retardée de la demande de monnaie à ses facteurs déterminants, sans toutefois laisser entendre qu'une formule sans décalage donnerait des résultats erronés lorsqu'on utilise des données annuelles. Le regroupement des données pour les différents pays dans le but d'obtenir des estimations par pays donne des résultats moins concluants, bien que les regroupements aient été effectués sur la base de plusieurs groupes de pays différents. Les variables inflationnistes ne sont pas significatives et les élasticités du revenu estimées sont en général sensiblement plus faibles que dans les équations relatives aux pays considérés individuellement. /// La demanda de dinero es una de las relaciones económicas más investigadas y que ha adquirido cada vez mayor importancia en la formulación y adaptación de programas de estabilización financiera. En este trabajo se trata de calcular una formulación relativamente sencilla de la demanda de dinero para los 19 paÃses del Departamento del Oriente Medio del Fondo. A fin de indicar las circunstancias particulares de dichos paÃses, el ingreso nacional se define de manera de excluir, si corresponde, el sector petrolero de sus economÃas, y se introducen otras modificaciones en los datos básicos para dar mayor realismo a la relación estimada. En los 19 paÃses del modelo se obtuvo una elasticidad-ingreso relativamente firme y con coeficientes significativos en 18 paÃses; las estimaciones de la elasticidad se conglomeraron en la gama de 1,25 a 1,50 según la definición amplia del dinero, y en la gama de 1,00 a 1,50 en la definición estricta del dinero. Se empleó la tasa de inflación como el costo de oportunidad de conservar el dinero, pero resultó estadÃsticamente significativa solamente en tres de los 19 paÃses. Las formulaciones sencillas de los desfases indicaron que en estos paÃses la demanda de dinero reacciona posiblemente con cierta demora ante sus determinantes fundamentales, pero no que las formulaciones no desfasadas serÃan muy engañosas si se empleaban datos anuales. Cuando se reunieron los datos de los diferentes paÃses con el objeto de obtener estimaciones de sección transversal, los resultados no fueron tan buenos, aunque para este fin se emplearon diferentes agrupaciones de paÃses. Las variables de inflación fueron insignificantes, y por lo general las elasticidades-ingreso estimadas fueron significativamente inferiores a las correspondientes a los distintos paÃses.
Dans la présente étude, l'auteur examine l'incidence que peuvent avoir, pour le comportement de la demande de monnaie, les différences structurelles et autres entre économies développées et moins développées. La fonction spécifiée régissant la demande de monnaie fait intervenir certains éléments dynamiques, à savoir les prévisions relatives au revenu et à la rapidité de variation des prix. On établit ainsi un rapport entre les encaisses réelles désirées d'une part, et le revenu réel "attendu", le taux d'intérêt courant et le rythme "attendu" des variations des prix, d'autre part. Pour rattacher ces variables que sont les prévisions aux phénomènes observables, on utilise un modèle permettant d'adapter les prévisions et d'observer directement la manière dont elles s'élaborent. Un premier examen de la question laisse supposer qu'il existe certaines différences entre économies développées et moins développées en ce qui concerne le comportement de cette fonction spécifiée. On a cherché à préciser la nature de ces différences d'une manière empirique en analysant les données relatives à 18 pays. Ceux-ci ont été regroupés en trois catégories de contextes économiques -- pays industriels, autres pays développés et pays moins développés -- et les données relatives à chaque catégorie ont été rassemblées. Il ressort de cette analyse qu'il y a amplement matière à généralisation au sujet des encaisses monétaires désirées, mais que la fonction déterminant la demande de monnaie s'exprime toutefois sous une forme différente selon le contexte économique. On a constaté que les prévisions relatives au revenu et au taux de variation des prix s'effectuent d'autant plus rapidement que l'économie est moins développée: en ce qui concerne la catégorie des pays moins développés, on a découvert que l'élasticité des prévisions en matière de revenu était proche de l'unité. Il semble qu'il n'y ait pratiquement aucun effet de substitution entre les encaisses monétaires et les avoirs réels dans les pays industriels, alors que cet effet de substitution paraît important dans les pays moins développés. D'après les estimations, l'élasticité du revenu dans chacun des groupes ne s'écarte guère de l'unité. /// En este artÃculo se examinan las implicaciones que, en cuanto al comportamiento de la demanda de dinero, tienen las diferencias estructurales y de otro tipo, entre las economÃas desarrolladas y las menos desarrolladas. La función de demanda de dinero especificada da cabida a expectativas no estáticas, con respecto tanto al ingreso como a la tasa de variación de los precios. Asà es que los saldos reales deseados están relacionados con el ingreso real "esperado", la tasa actual de interés, y la tasa "esperada" de variación de precios. Se utiliza un modelo de expectativa adaptante, que permite una investigación directa sobre la manera en que se forman las expectativas, con objeto de relacionar las variables esperadas y las magnitudes observables. Las consideraciones apriorÃsticas sugieren ciertas diferencias entre las economÃas desarrolladas y las menos desarrolladas, en cuanto al comportamiento de la función especificada. Se ha tratado de obtener una visión empÃrica, analizando los datos correspondientes a 18 paÃses. A los 18 paÃses estudiados se les ha agrupado según tres ambientes económicos--industriales, otros desarrollados, y menos desarrollados--y se han agrupado los datos para cada una de esas categorÃas. Los resultados obtenidos sugieren que, aun habiendo un amplio margen para poder generalizar sobre las cantidades de dinero que se desean guardar, hay diferencias en cuanto a la forma de la función de demanda de dinero que mejor se ajuste a cada uno de los ambientes económicos. Se ha encontrado que cuanto menos desarrollada es la economÃa, más cortos son los desfases en la formación de expectativa con respecto al ingreso y a la tasa de variación de los precios. En el grupo de los menos desarrollados, el resultado obtenido para la elasticidad de expectativa del ingreso fue próximo a la unidad. Mientras que en los paÃses industriales no parece haber una substitución significativa entre el dinero retenido y los activos reales, parece ser que dicha substitución es importante en los paÃses menos desarrollados. Las elasticidades con respecto al ingreso halladas para los distintos grupos no se separan mucho de la unidad.
Applies an error-correction model to demand for money in five African economies: Congo, Côte d'Ivoire, Mauritius, Morocco and Tunisia. Attention is given to a set of opportunity cost variables including expected inflation, domestic interest rate, foreign interest rate and expected exchange-rate depreciation. The empirical results show that the domestic interest rate plays a significant role in the demand for money functions for three of the five countries and external opportunity cost variables are significant for one of the others. The results show some diversity in money demand behaviour in the countries studied, but the error correction mechanism is always significant and in four out of five cases there is a short-run inflation impact. The equations are subjected to a battery of tests and found to be statistically well-behaved.
This paper examines the demand for broad money in West Germany, the Netherlands and France. We give an exposition of and apply the general to specific econometric modelling methodology which has been successful in modelling the demand for money in the U.K. We find stable short-run demand functions for each of the three countries examined, using a consistent data base previously published by other researchers. Each of the estimated short-run equations has a long-run or steady-state solution which is consistent with economic theory. For West Germany and the Netherlands we find long-run income elasticities of unity, which constrasts with the results of earlier studies.
This paper analyzes the effects of expectations about future exchange-rate adjustments on the demand for money. These effects are studied empirically for the case of countries which have imposed foreign-exchange restrictions. The results obtained for Brazil, Chile, and Colombia indicate that the demand for money is significantly reduced when expectations of black-market depreciation intensify; and that when this variable (for which the proxy used is the divergence of the black-market exchange rate from purchasing power parity) is omitted from the demand-for-money function, the response of the demand for money to changes in the expected rate of domestic inflation tends to be overestimated.
In this article we provide evidence from annual data for the period 1880–1986 that institutional variables are significant determinants of velocity in the United States, United Kingdom, Canada, Sweden, and Norway. This evidence supplements our earlier findings (Bordo and Jonung, The Long-run Behavior of the Velocity of Circulation, Cambridge University Press, 1987) for annual data ending in the early 1970s. We present evidence that several proxies for institutional change in the financial sector are significant determinants of the long-run velocity function; that for the majority of countries the long-run velocity function incorporating institutional determinants has not undergone significant change over the last 10–15 years; and that out-of-sample forecasts over the last 10–15 years based on our institutional hypothesis are superior to those based on a benchmark long-run velocity function for a number of countries. These results suggests that failure to account for institutional change in the financial sector such as may be captured by our proxy variables may well be one factor behind the recently documented instability and decline in predictive power of short-run velocity models incorporating dynamic adjustment and higher-frequency data.
This article examines whether there are significant differences in the speed of adjustment of the actual to the desired money stock among major industrialized countries. Demand for money functions, including a partial adjustment hypothesis, were estimated for the United States, United Kingdom, Canada, Germany, France and Japan essentially over the period 1960–1976. The functions were tested for stability and found to be stable in most cases. The estimations show that, mainly with the exception of Germany and the United Kingdom for broad money, the speed of adjustment is relatively high. These results tend to support monetarist views. The statistical test for differences in the speed of adjustment revealed that only a few significant differences exist when narrow money is used. When broad money is used, howeever, the United Kingdom and Germany are shown to have significantly slower speeds of adjustment than almost all the other countries.
We consider a nonstationary vector autoregressive process which is integrated of order 1, and generated by i.i.d. Gaussian errors. We then derive the maximum likelihood estimator of the space of cointegration vectors and the likelihood ratio test of the hypothesis that it has a given number of dimensions. Further we test linear hypotheses about the cointegration vectors.The asymptotic distribution of these test statistics are found and the first is described by a natural multivariate version of the usual test for unit root in an autoregressive process, and the other is a χ2 test.
It has recently been argued that unanticipated changes in nominal money supply should affect the real demand for money, and empirical results which appear to support this hypothesis have been presented. Unfortunately, the econometric techniques used by previous authors yield severel biased estimates. In this paper we show how valid estimates may easily be obtained, and present some illustrative empirical results using U.S. data. These results do not support the conclusions of earlier authors. We find that unanticipated money supply changes do indeed affect the real demand for money, but with the wrong sign, and that anticipated changes also have a significant effect.A consistency test for all models employing the anticipated-unanticipated distinction is also proposed.
The demand for real cash balances deduced from an underlying portfolio model of the financial market is shown to depend upon domestic variables and foreign monetary developments. The model is estimated using quarterly postwar data for Canada, Germany, UK and US. There is clear evidence that demand for money is affected not only by changes in domestic variables such as permanent income, domestic interest rate and price expectations but also by fluctuations in exchange rate expectations and foreign interest rates. The conclusion, that domestic monetary policy is fairly ineffective and domestic financial markets are highly vulnerable to changes in foreign financial and monetary developments need to be modified in light of the results presented in this paper.
The empirical performance of two recent approaches to modeling money demand is compared by estimating functions for narrow and broad aggregates in five large industrial countries. Error correction modeling outperforms the Carr-Darby buffer stock model (which in turn outperforms the conventional partial adjustment model) within the 1974–1985 sample period. Post-sample, however, the comparisons are mixed. The specification of money demand appears to vary substantially from case to case.
Thesis--University of Chicago. Microfilm copy of typescript.
Typescript. Thesis (Ph.D.)--New York University, Graduate School of Arts and Science, 1989. Includes bibliographical references (leaves 165-182).
Thesis (Ph. D.)--University of Pennsylvania, 1976. Includes bibliographical references (leaves xii-xv) and index. Photocopy.
This paper examines the impacts of external price shocks in the Malaysian economy. There are three simulations are carried out with different degrees of external shocks using Malaysian Social Accounting Matrix (SAM) and Computable General Equilibrium (CGE) analysis. The model results indicate that the import price shocks, better known as external price shocks by 15% decreases the domestic production of building and construction sector by 25.87%, hotels, restaurants and entertainment sector by 12.04%, industry sector by 12.02%, agriculture sector by 11.01%, and electricity and gas sector by 9.55% from the baseline. On the import side, our simulation results illustrate that as a result of the import price shocks by 15%, imports decreases significantly in all sectors from base level. Among the scenarios, the largest negative impacts goes on industry sectors by 29.67% followed by building and construction sector by 22.42%, hotels, restaurants and entertainment sector by 19.45%, electricity and gas sector by 13.%, agriculture sector by 12.63% and other service sectors by 11.17%. However significant negative impact goes to the investment and fixed capital investment. It also causes the household income, household consumption and household savings down and increases the cost of livings in the economy results in downward social welfare.
A problem in the use of adaptive expectations as a mechanism for generating expectations of inflation is the assumption that the speed with which individuals revise their expectations is constant. The purpose of this paper is to estimate the Cagan model of the demand for money for six hyperinflation countries allowing the coefficient of expectations (which measures the response to the error between the actual and the expected rate of inflation) to vary with the level and the change in the rate of inflation. The results indicate considerable support for this particular hypothesis.