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Financial innovations and demand for United States M1 and M2 components

Financial innovations and demand for United States M1 and M2 components
Financial innovations and demand for United States M1 and M2 components
This paper investigates the effects of the Depository Institution Deregulation and Monetary Control Act of 1980 on the demand function of the United States M1, M2 and their components. The empirical tests are conducted using monthly data from January 1959 to June 1997 and the Johansen cointegration procedure. Results show that the stated monetary act of 1980 considerably affected the income and interest rate demand elasticities of both M1, M2 and their components. Results show a fall in the M1 interest rate elasticity indicating M1 as possibly a more effective monetary policy tool after 1980. Results fail to show a stationary M2 demand function during the 1980s and 1990s after the 1980 monetary act. The rate of adjustment of the monetary variables towards the long-run equilibrium is also affected by the 1980 Act. [E41, E44]
1016-8737
73-93
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728

Choudhry, Taufiq (2002) Financial innovations and demand for United States M1 and M2 components. International Economic Journal, 16 (1), 73-93. (doi:10.1080/10168730200080004).

Record type: Article

Abstract

This paper investigates the effects of the Depository Institution Deregulation and Monetary Control Act of 1980 on the demand function of the United States M1, M2 and their components. The empirical tests are conducted using monthly data from January 1959 to June 1997 and the Johansen cointegration procedure. Results show that the stated monetary act of 1980 considerably affected the income and interest rate demand elasticities of both M1, M2 and their components. Results show a fall in the M1 interest rate elasticity indicating M1 as possibly a more effective monetary policy tool after 1980. Results fail to show a stationary M2 demand function during the 1980s and 1990s after the 1980 monetary act. The rate of adjustment of the monetary variables towards the long-run equilibrium is also affected by the 1980 Act. [E41, E44]

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Published date: 2002

Identifiers

Local EPrints ID: 35836
URI: http://eprints.soton.ac.uk/id/eprint/35836
ISSN: 1016-8737
PURE UUID: 2d9242ba-d8ba-46f0-91fa-865b696e5603
ORCID for Taufiq Choudhry: ORCID iD orcid.org/0000-0002-0463-0662

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Date deposited: 23 May 2006
Last modified: 18 Feb 2021 16:55

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