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ESTABILIDAD DE LA DEMANDA DE DINERO, COINTEGRACION Y POLITICA MONETARIA

Luis Oscar Herrera and Rodrigo Vergara
Cuadernos de Economía
Año 29, No. 86 (Abril 1992), pp. 35-54
Stable URL: http://www.jstor.org/stable/23830478
Page Count: 20
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
ESTABILIDAD DE LA DEMANDA DE DINERO, COINTEGRACION Y POLITICA MONETARIA
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Abstract

The stability of the demand for money is of primary importance for the design of monetary policy. If it is found that a stable long term relation exists then the monetary authority should set strict monetary targets for this term if it wants to keep inflation under control. Hence, although changes in monetary aggregates could not be that important in the short run, in the long run they will be closely associated with changes in prices. This paper uses the cointegration approach to see whether it is possible to find a stable money demand function in the long run. The estimation period goes from 1978:I until 1991:I. It is found that such a relation exists if a dummy is included in the demand for money for the period starting in 1983:IV. This dummy would be capturing "technological innovations" in the financial sector for that period. Once established that the demand for money cointegrates (or, is stable in the long run) it is possible to find a short term error correction representation for it. This short term money demand is compared in terms of its parameters and predictive power with the demand for money currently in use by the Central Bank of Chile (MR model). It is found that the latter would have performed better in terms of predictions for the period 1987:I - 1991:I. In other words, if an error correction model had been used to predict the money demand for this period, predictions would have been worse.

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