If an economic relationship is superimposed by a linear time trend, the regression without detrending is misspecified. The estimators of such a regression do not converge to the true parameter values. First, the asymptotic limit arising from such misspecified regressions is characterized....

This paper develops a shopping-time model in an open economy framework to motivate the specification of money demand. This microfoundations-of-money model allows me to choose which variables, and in what forms, should be used in the empirical money demand function. In particular, the model...

This paper provides tests of an econometric model of the demand for UK M0. The existence of a long-run cointegrating relationship between M0 and key economic variables is established and a plausible dynamic error-correction model is estimated. A model that passes standard specification tests is...

Several studies have developed empirical models of U.K. money demand using the century of annual and phase-average data in Friedman and Schwartz (1982). The current paper evaluates key models from those studies, employing tests of constancy and encompassing. The evidence strongly favors an...

We derive a theoretical model for the demand for money using the adjustment cost augmented money-in-the-utility-function approach. The steady-state - utility function - parameters of the model of narrow money (M1) estimated with cointegration techniques are stable over the foreign exchange rate...

This paper examines several central issues in the empirical modeling of money demand. These issues include economic theory, data measurement, parameter constancy, the opportunity cost of holding money, cointegration, model specification, exogeneity, and inferences for policy. Review of these...

This paper examines the stability of the demand for money in Italy using a newly extended data set for the period 1861 - 1996. We examine how the evolution of the financial system in Italy and policy shifts have affected the behavior of the long-run demand for money, and present tests of...

Using cointegration and error-correction, this paper develops and tests a money demand model for the small open economy of the United Arab Emirates. The paper takes into account the possible role of the international opportunity costs (as proxied by foreign interest rates and exchange rates) in...

This paper presents an analysis of the stimulants and consequences of money demand dynamics. By assuming that household's money holdings and consumption preferences are not separable, we demonstrate that the interest-elasticity of demand for money is a function of the household's preference to...

Traditional studies of money demand for both developed and less developed countries have shown that there are periods of "missing money," that is, there is consistent over-prediction of real balances. This paper uses cointegration techniques to study the effects of financial innovation on the...