The demand for money instability: Notes on the empirical literature

Date

1996

Author

Özmen, Erdal

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This study presents a critical assessment of money demand literature focusing on money demand instability. The main message of the overview is that, not only a dynamic mis-specification hut also an invalid conditioning and a change in the relevant variable space (due to a policy regime change and/or financial innovation) should be taken as potentially complementary explanations of a money demand instability. These results are also interpreted in the contexts of the Lucas (1976) critique, tests for "super exogeneity" and econometric modelling methodology. Alternative economic theories often postulate not only non-nested systems for a given set of parameters of interest but also different partitioning of a variables in a given system into conditional and marginal processes. In this context, the paper emphasises the role of alternative adjustment mechanisms to a monetary disequilibrium in formulating a conditional money demand system.

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https://hdl.handle.net/11511/109513

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Department of Economics, Article