## 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](https://www.imf.org/en/publications/wp/issues/2016/12/30/the-demand-for-m1-in-the-united-states-a-commenton-baba-hendry-and-starr-1036)

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## Bibliographic details
- Authors: James M. Boughton
- Published: March 1, 1993
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451920963.001

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### 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

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-demand-for-m1-in-the-united-states-a-commenton-baba-hendry-and-starr-1036_