A COMPONENT-BASED ANALYSIS OF THE DANISH LONG-RUN MONEY DEMAND RELATION

This paper examines the relation between monetary asset components and some of the <p> variables that traditionally enter into aggregate money demand relations. This is done for <p> Danish data within the natural framework of a multivariate econometric model. The <p> purpose of the study is to investigate issues in relation to the level and weighting of a <p> monetary aggregate. We show that within this model it is possible to identify monetary <p> aggregates at different levels of aggregation and that for the narrow aggregate (M1) equal <p> weighting of the components are permitted. For the broader aggregates, (M2) or (M2-M1), <p> equal weighting is no longer appropriate. These findings are not contradictory to what we <p> would expect from aggregation and index number theory. Finally, the overall identifica-tion <p> of the stationary (or long-run) structure points towards a co-existence of a liquid and <p> a less liquid money demand relation which is interpreted as an indication of the <p> possibility of splitting the total money demand relation with respect to different motives <p> for holding money.