Abstract
In this article, we examine the issue of a levels relationship and stability of the US money demand function over the period 1959:01 to 2004:02. We use the Lagrange multiplier structural break unit root test and the bounds testing approach to a long-run relationship in levels of the variables, namely real money demand, nominal interest rate and real income. We find greater evidence for a long-run relationship in levels and stability of the US money demand function when we use M2 as a proxy for money demand. However, we find little evidence for a long-run relationship between M1 and M2 with their determinants for the recent period, spanning the last decade or so.
Acknowledgements
Helpful comments on an earlier version of this paper from a referee of this journal and Professor Mark Taylor are gratefully acknowledged. However, the usual caveats apply.
Notes
1 The literature on the demand for money is voluminous. We do not review the literature here since it has been done in several previous issues of this Journal; see, inter alia, Hoque and Al-Mutairi, Citation1996; Funke and Thornton, Citation1999; Hamori and Hamori, Citation1999; Khalid, Citation1999; Jose and Sanchez-Fung, Citation2000; Karfakis and Opoulos, Citation2000; Siddiki, Citation2000; Buch, Citation2001; Hamori and Tokihisa, Citation2001; Huang et al. Citation2001; Ramajo, Citation2001; Andoh and Chappell, Citation2002; Bahmani-Oskooee and Chomsisengphet, Citation2002; Herwartz and Reimers, Citation2003; Bahmani-Oskooee and Rehman, Citation2005; Hacker and Hatemi-J, Citation2005.
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