The Demand for M1 in the United States: A Commenton Baba, Hendry, and Starr
IMF Working Papers, March 1, 1993
Source details
- Canonical URL
- The Demand for M1 in the United States: A Commenton Baba, Hendry, and Starr
Other formats
Bibliographic details
- Authors: James M. Boughton
- Published: March 1, 1993
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451920963.001
Summary and central purpose
- A recent paper by Baba, Hendry, and Starr presents an error-correction model of the demand for M1 in the United States that shows a dramatic improvement in both fit and stability over earlier models.
- This note (James M. Boughton) estimates an alternative model with the same data set and draws two conclusions:
- The improvements are due more to the use of complex dynamics than to the introduction of variables representing financial innovation.
- Some of the economic properties reported are not robust with respect to minor changes in specification.
Major findings
- Improvements in fit and stability in the Baba, Hendry, and Starr model are attributed primarily to complex dynamics rather than the introduction of financial-innovation variables.
- Certain economic properties reported in the original model lack robustness to minor specification changes.
Methodology and scope
- The note estimates an alternative model using the same data set as Baba, Hendry, and Starr.
- The focus is on comparing model fit, stability, and the role of added variables representing financial innovation versus the role of model dynamics.
Subjects and keywords
- Subject: Demand for money, Financial services, Money, Short term interest rates
- Keywords: Bhs equation, Bhs interest-rate effect, Bhs model, Demand for money, interest elasticity, Short term interest rates, standard error, steady-state elasticity, WP