What Have We Learned About Estimating the Demand for Money? a Multicountry Evaluation of Some New Approaches

February 1, 1991

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George S Tavlas, and James M. Boughton What Have We Learned About Estimating the Demand for Money? a Multicountry Evaluation of Some New Approaches, (USA: International Monetary Fund, 1991) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper provides estimates of the demand for both narrow and broad monetary aggregates for the five largest industrial countries using two recent approaches: buffer stock and error correction models. The performances of these models are compared with several versions of the conventional partial adjustment model. Tests are performed in order to evaluate the parameter stability, post-sample predictive ability, encompassing properties, and economic implications of the models. The results are encouraging with respect to the newer models, as they significantly outperform the traditional approach. It is found that the error correction model is especially promising as a general approach.

Subject: Demand for money, Financial institutions, Monetary base, Money, National accounts, Personal income, Price elasticity, Prices, Stocks

Keywords: Broad money, Buffer stock equation, Demand for money, Equation properties, Error correction equation, Monetary base, Money demand, Money demand equation, Money supply, Narrow money, Personal income, Price elasticity, Stocks, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1991/016
Stock No:

WPIEA0161991
ISBN:

9781451843309
ISSN:

1018-5941

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