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First published in Macroeconomic Dynamics, First View (Sep 2024) published by Cambridge University Press. DOI: https://doi.org/10.1017/S1365100524000427

Open Access sponsored by Cambridge Open Equity Initiative (COEI).

Document Type

Article

Publication Version

Published Version

Keywords

Money demand, Divisia monetary aggregates, cointegration tests, bank deposits

Journal/Book/Conference Title

Macroeconomic Dynamics

First Page

1

Last Page

26

Abstract

A large literature has shown money demand functions constructed from simple-sum aggregates are unstable. We revisit the controversy surrounding the instability of money demand by examining cointegrating income-money relationships with the Divisia monetary aggregates for the U.S., and compare them with their simple-sum counterparts. We innovate by conducting a more granular analysis of various monetary assets and their associated user costs. We find characterizing money demand with simple-sum measures only works well in a period preceding 1980. Divisia aggregates, their components, and their user costs provide a more reliable interpretation of money demand. Subsample analysis across 1980 and 2008 suggests the instability of money demand is a matter of measurement rather than a consequence of a structural change in agents’ preference for monetary assets.

Department

Department of Economics

Original Publication Date

9-30-2024

Object Description

1 PDF File

DOI of published version

10.1017/S1365100524000427

Repository

UNI ScholarWorks, Rod Library, University of Northern Iowa

Copyright

©2024 The Author(s) This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives license

Language

en

File Format

application/pdf

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