Long-Run Income and Interest Elasticities of Money Demand in the United States

Bequest motives and household money demand

“…In the asset approach, however, the scale variable is permanent income or real wealth and the price or opportunity cost of holding money is the user cost not only for narrow money but also for broad money (Barnett 1980). Despite these differences, past studies based on the asset approach often employed real income as a proxy for permanent income and the rate of interest as a proxy for the user cost and found that the long-run income and interest elasticities were not significantly different from unity and −0.5, respectively (e.g., Hoffman and Rasche 1991;Hoffman et al 1995). In contrast, the square-root law of the Baumol-Tobin model dictates that the long-run income and interest elasticities have an absolute value of 0.5.…”

“…Since the late 1980s, the standard short-run aggregate money demand has been largely replaced by the cointegration approach (Engel and Granger 1987;Stock 1987;Johansen 1988). Nevertheless, findings by Hoffman et al (1995), Hoffman and Rasche (1991), Hafer and Jansen (1991), Miller (1991), Friedman and Kuttner (1992), Baba et al (1992), Stock and Watson (1993), Ball (2001), Mark and Sul (2003), Sarno et al (2003) and many others remain inconclusive.…”

Modelling Short-run Money Demand for the US

“…There is a vast amount of empirical evidence concerning the existence of a cointegrating relationship between real money demand, some kind of interest rate and income. Examples for the US are Hoffman and Rasche (1991) or Stock and Watson (1993), for the UK Ericsson, Hendry and Prestwich (1998) and Teräsvirta and Eliasson (2001), or for the euro area Calza and Zaghini (2006) or Dreger and Wolters (2010).…”

Dynamic Analysis of Money Demand Function in Turkey

“…However most of this literature depends on a stable and linear money demand function. Some of these reputable references are Chow (1966), Laidler (1985Laidler ( , 1977, Lucas (1988), Hoffman and Rasche (1991), Miller (1991), Baba et al (1992), Kallon, (1992) Stock and Watson (1993), Mehra (1993), Miyao (1996), Choi et al (1998), Ahmet and Munirs (2000), Ball (2001), Anderson and Rasche (2001), Sriram (2001), Nell (2003), Handa (2009) and Drama and Yao (2010). Additions to these studies, recently the dynamic money demand function have been estimated for both country groups and individuals by many notable references: Adam (1992), Bae and De jong (2007), Baba et al (2013), Terasvirta and Eliasson (2001), Chen and Wu (2005), Phillips (1999, 2001), Chang et al (2001), De Jong (2002 and Asuamah et al (2012).…”