International Evidence on Long Run Money Demand
We explore the long-run demand for M1 based on a dataset comprising 31 countries since 1851. In many cases cointegration tests identify a long-run equilibrium relationship between either velocity and the short rate, or M1, GDP, and the short rate. Evidence is especially strong for the United States and the United Kingdom over the entire period since World War I, and for high-inflation countries such as Israel. For low-inflation countries the data often prefer the specification in the levels of velocity and the short rate originally estimated by Selden (1956) and Latané (1960) to either the log-log, or the semi-log ones. This is especially clear for the United States.
We wish to thank Jesus Fernandez-Villaverde, Helmut Luetkepohl, Albert Marcet, Ed Nelson and Pedro Teles for useful discussions. Special thanks to Joao Ayres, and Nicole Gorton, Eva Werner and Junji Yano for invaluable help with the data. Usual disclaimers apply.
Special thanks to Kim Padkjaer, Joao Ayres, J.P.B. Jonker, Nicole Gorton, Jaime Reis, Katharina Ostensen, Nuno Valerio, Eva Werner, and Junji Yano for invaluable help with the data. Usual disclaimers apply.