Cointegration,error correction,and the demand for money in Mexico

Cointegration, Error Correction and the Demand for Money in Mexico. -Estimates of the long-run demand for narrow and broad definitions of the Mexican money supply over the period 1980Q1–1994Q1 suggest that a single cointegrating relationship exists for real money balances (M1 and M2), a scale variable (real GDP or real consumption expenditure), and the 91-day treasury bill rate. The results from short-run dynamic equations favor M2 as the monetary aggregate to target and suggest that real GDP rather than real private consumption is a more appropriate scale variable in the demand for money function for Mexico.