Long-run Income and Interest Elasticities of Money Demand in the United States / Dennis Hoffman, Robert H. Rasche.

Format:

Book

Author/Creator:

Hoffman, Dennis.

Contributor:

National Bureau of Economic Research.

Rasche, Robert H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2949.

NBER working paper series no. w2949

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1989.

Summary:

This study investigates the stability of long-run log-linear demand functions for narrowly defined monetary aggregates (M1, Monetary Base) in the U.S. during the post World War II period. The hypotheses that the individual time series which appear in such equations (real M1, real Monetary Base, real Personal Income and short-term and long-term nominal interest rates) all have unit roots cannot be rejected. The primary conclusion of this study is that with proper attention to the time series properties of the available data, there exists strong evidence in support of a stable equilibrium demand function for real balances in the post-World War II U.S. economy. The hypothesis of a unitary equilibrium real income elasticity (a velocity function) cannot be rejected. Further, the estimates of equilibrium interest elasticities are approximately -.5 to -.6 for real M1 and -.4 to -.5 for real monetary base. The estimated interest elasticities are significantly different statistically depending on whether long- term or short-term interest rates are used, but the observed differences in these estimates are not of economic significance.

Notes:

Print version record

April 1989.