THE DEMAND FOR M1: A FORWARD LOOKING BUFFER STOCK MODEL

A forward looking model of the demand for M1 based on minimisingmulti-period quadratic costs is derived. The dynamic responseof the demand for money differs depending on whether shocksare anticipated or unanticipated. The restrictions implicitin the forward model are tested and the model is compared witha conventional ADL backward looking model.     

THE BEHAVIOUR OF CERTIFICATE OF DEPOSIT RATES IN THE UK

Using a number of maturities of up to one year and weekly highquality data on UK, CD rates, 1975–92, we provide a varietyof tests of the expectations hypothesis (EH) of the term structure.Our results appear to give more support to the EH than do earlierstudies, which often use longer maturities and data of a lowerfrequency on coupon paying bonds and yield data on ‘bundlesof bonds’. If one is willing to assume that noise traderspredominate in the bond market at very short horizons, we canprovide some insights into empirical results, found in the literature.