Modelling the demand for broad money in the United States |
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Authors: | Augustine C Arize |
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Institution: | (1) East Texas State University, USA |
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Abstract: | The demand for money function occupies a central role in most theories of aggregate economic activity, especially in the formulation and execution of effective monetary policy. In this paper, estimates of the short- and long-run demand for broad money in the United States are obtained. The empirical evidence suggests that the relationship between the growth of money balances and its economic determinants is more stable than some have argued. Importantly, the out-of-sample forecasts presented here suggest that M2 growth in the 1980s is well predicted by an error-correction model that includes a variable representing the value of time and also uses real consumer spending as the short-run scale variable. |
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