The demand for broad money in the United Kingdom and in West Germany: a comparative dynamic short-run study

This paper examines the short-run adjustment process in the demand for money in the UK and in Germany with a view, particularly, to exploring the consequences of the different experiences of financial innovation in the two countries. Our hypothesis was that interest rate relativities might play a larger role in the UK where a major innovation of the last twenty years has been the rise in the proportion of deposits paying market-sensitive interest rates. The estimations of the short-run dynamic equations, which are satisfactory for both countries, confirmed our view.