The Demand for M1 in the United States: A Commenton Baba, Hendry, and Starr

March 1, 1993

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James M. Boughton The Demand for M1 in the United States: A Commenton Baba, Hendry, and Starr, (USA: International Monetary Fund, 1993) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

A recent paper by Baba, Hendry, and Starr presents an error-correction model of the demand for M1 in the United States, which shows a dramatic improvement in both fit and stability over earlier models. This note estimates an alternative model with the same data set and draws two conclusions: that the improvements are due more to the use of complex dynamics than to the introduction of variables representing financial innovation, and that some of the economic properties are not robust with respect to minor changes in specification.

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

Publication Details

Pages:

10
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1993/024
Stock No:

WPIEA0241993
ISBN:

9781451920963
ISSN:

1018-5941

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