Recent Instability of the Demand for Money: An International Perspective

Boughton, James M.

doi:10.2307/1057355

Cited by 93 publications

(27 citation statements)

References 29 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The computed F-ratio for this test was 7.21. Since the one This result appears to contradict the findings of Boughton (1981) who investigated the money demand functions of Germany and the United Kingdom using quarterly data over the period 1960 to 1977 and did not find any significant evidence of instability. His findings are not inconsistent with ours because he considered only money demand functions.…”

Section: T (18) 0i=6 Where Wj Is Given By (17) and ~2 = (Yt--xtbt)'contrasting

confidence: 58%

A short-run monetary model of exchange rate determination: Stability tests and forecasting

Richardson

1988

Empirical Economics

View full text Add to dashboard Cite

The paper develops a short-run econometric monetary model of exchange rate determination. The model assumes a conventional money demand function, markets which are linked by interest arbitrage, adaptive expectations formation, and parameters which are stable over time. One-period-ahead forecasts of the mark/pound rate generated by the model compare favorably with naive model forecasts using monthly data. Stability tests provided evidence of parameter instability in 1976 but correction for it did not improve forecasting accuracy. The inability of monetary models to forecast accurately may be due to the underlying model assumptions rather than parameter instability.Several recent studies of the forecasting performance of monetary exchange rate models have found that forecasts generated by these models were not nearly as accurate as the forecasts of naive models. For example, Rogoff (1983a, 1983b) found that forecasts based on monetary models produced one-month-ahead forecasts which were ten percent to twenty percent less accurate (as measured by rootmean square error) than the naive model forecasts. This inability of monetary models to outperform naive models has called into question the desirability of using monetary models for the purpose of forecasting exchange rates.The monetary models used in these forecasting exercises assume that the exchange rate function is stable, i.e., that the parameters of the function are invariant with respect to time. The models were estimated and forecasts are generated under the assumption that the relationship between the explanatory variables and the exchange rate did not change over time. It has been suggested by Meese and Rogoff (1983a, 1989b), Frankel (1984 and others that the poor forecasting performance of the monetary models might be due to the instability of the underlying structural relationships.

show abstract

Section: T (18) 0i=6 Where Wj Is Given By (17) and ~2 = (Yt--xtbt)'contrasting

confidence: 58%

A short-run monetary model of exchange rate determination: Stability tests and forecasting

Richardson

1988

Empirical Economics

View full text Add to dashboard Cite

show abstract

“…It is not inconceivable that the various other elements combined may lead to a controllable and predictable development of the money stock. Boughton (1981) Den Butter and Fase (1981) RFA 11 1957-1972M1 1957-1972M1 1957-1972M1 1957-1972M1 1957-1972M1 1957-1972M! 1957-1972MI 1957:1 -1976 1971:1 -1976:IV M2 1960:1 -1976:IV M2 1960:IV-1976:IV M2 1963:1 -1973:IV M2 1962:11 -1976:IV M2 1960:1 -1976:Iu M2 1964:IV-1970 US 1954:1 -1986:11 Mlh J 1966:I -1985:IV Mlb G 1969:I -1985:IV Mlb F 1964:1 -1985:IV Mlb UK 1958:1 -1986:I M1b C 1962:I -1985:IV M1 b I 1971…”

Section: Resultsmentioning

confidence: 99%

In search for stability: An empirical appraisal of the demand for money in the G7 and EC countries

Fase

1994

De Economist

View full text Add to dashboard Cite

The demand for money has been at the centre of monetary econometrics. The demand for money research focuses on the factors determining money-holding behaviour of the private sector of the economy. Knowledge of this reaction pattern is of great importance for assessing the effectiveness of monetary policy or the impact of monetary or other shocks. However, views on this matter differ widely. On the one hand, there is a general approach, focusing on the monetary climate, which regards monetary ease or tightness as the main driving force without specifying the nature of the underlying transmission process. On the other hand, a more specific approach is discernible, which regards all changes in money-holding behaviour, or, in other words the reaUocation within the range of components of wealth, as the most important channel for spending effects.The demand for money is a well-explored field of monetary econometrics. Against that background and in view of the traditionally ample availability of data to examine the various theoretical views empirically, this is not surprising. Moreover, research on the demand for money conducted in the recent past has been an important source of inspiration for innovations in both monetary theory and econometric technique. This has resulted in an abundant flow of interesting empirical research on the demand for money covering many countries and regions. This survey aims at presenting an inventory and assessing these innovative activities from the viewpoint of monetary policy. It focuses on four aspects in particular. The first is the evolution of the theory of the demand for money, of which a brief survey is presented. The second is a summary of empirical studies carried out since 1970. Because virtually all recent surveys of money demand research -see e.g. , Goldfield and Sichel (1990) or Boughton (1992) -focus primarily on the US, the present survey, following Fase and Kun6 (1974, p. 344-345;1975) for the 1960s and before, broadens the perspective by including the G7 and EC countries in particular. The third aspect concerns the most important theoretical and methodological lessons to be

show abstract

“…Importantly, some researchers (e.g. Coghlan, 1978 andBoughton, 1981) have found these assumptions to be partly responsible for the conclusion reached in several studies that the money demand function is structurally unstable. Another defect which is often ignored in the money demand literature is the ad hoc assumption that the underlying lag weights are all non-negative.…”

Section: A F Darratmentioning

confidence: 99%

“…Laidler (1980) has argued that a fully consistent money demand estimation may require simultaneous estimations of supply and demand equations. However, as Boughton (1981) pointed out, such an argument is solely 9A constant term is included in the equation to ascertain whether or not a time trend is present in the postulated demand relationship. Another rationale for this inclusion is suggested by Lieberman (1979).…”

Section: T H E M O N E Y D E M a N D M O D E L A N D T H E E M P I R mentioning

confidence: 99%

The demand for money in some major OPEC members: regression estimates and stability results

Darrat

1986

Applied Economics

View full text Add to dashboard Cite

Recent Instability of the Demand for Money: An International Perspective

Cited by 93 publications

References 29 publications

A short-run monetary model of exchange rate determination: Stability tests and forecasting

A short-run monetary model of exchange rate determination: Stability tests and forecasting

In search for stability: An empirical appraisal of the demand for money in the G7 and EC countries

The demand for money in some major OPEC members: regression estimates and stability results

Contact Info

Product

Resources

About