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Long-Run Income and Interest Elasticities of Money Demand in the United States
Dennis L. Hoffman and Robert H. Rasche
The Review of Economics and Statistics
Vol. 73, No. 4 (Nov., 1991), pp. 665-674
Published by: The MIT Press
Stable URL: http://www.jstor.org/stable/2109405
Page Count: 10
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Econometric techniques designed to accommodate nonstationary data are used to re-examine the stability of interest and income elasticities of money demand in the United States. Estimates based on post-war monthly data reveal a stable relationship between M1 velocity and various measures of interest rates that proxy the opportunity cost of holding money balances. Tests for the existence of cointegration and methods used to estimate the income and interest elasticities are based on procedures prescribed by Johansen (1988). Corresponding error correction estimates offer insight as to the dynamics of the process that maintains the equilibrium relation between velocity and interest rates.
The Review of Economics and Statistics © 1991 The MIT Press