Faculty Publications
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
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Language
en
File Format
application/pdf
Recommended Citation
Chen Z, Valcarcel VJ. A granular investigation on the stability of money demand. Macroeconomic Dynamics. Published online 2024:1-26. doi:10.1017/S1365100524000427
Comments
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).