Economic policy uncertainty and the UK demand for money: evidence from the inter-war period
Economic policy uncertainty and the UK demand for money: evidence from the inter-war period
Purpose: this paper empirically investigates the effect of economic policy uncertainty (EPU) on the UK money demand stability during the inter-war period (1920–1938). Both a narrow definition (M0) and a broad definition (M3) of money are investigated.
Design/methodology/approach: the empirical investigation is conducted by employing the autoregressive distributed lag (ARDL) bounds testing approach to cointegration.
Findings: results presented indicate a stable demand for both definitions of money only when EPU is included as one of the determinants of demand function. The EPU imposes a negative effect on the demand for both definitions of money. The causality test results further indicate long- and short-term causality from the determinants (including EPU) to both forms of money demand.
Practical implications: significant presence of the economic uncertainty weakens the effects of the monetary policy on the economy.
Originality/value: this is a historical economics paper. Given the turmoil and uncertainty associated with the inter-war period, an empirical investigation of UK money demand is an interesting exercise. This is the first such paper.
Causality, Cointegration, Inter-war ear, Money demand, Uncertainty
1485-1500
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
9 January 2023
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Choudhry, Taufiq
(2023)
Economic policy uncertainty and the UK demand for money: evidence from the inter-war period.
Journal of Economic Studies, 50 (7), .
(doi:10.1108/JES-03-2022-0167).
Abstract
Purpose: this paper empirically investigates the effect of economic policy uncertainty (EPU) on the UK money demand stability during the inter-war period (1920–1938). Both a narrow definition (M0) and a broad definition (M3) of money are investigated.
Design/methodology/approach: the empirical investigation is conducted by employing the autoregressive distributed lag (ARDL) bounds testing approach to cointegration.
Findings: results presented indicate a stable demand for both definitions of money only when EPU is included as one of the determinants of demand function. The EPU imposes a negative effect on the demand for both definitions of money. The causality test results further indicate long- and short-term causality from the determinants (including EPU) to both forms of money demand.
Practical implications: significant presence of the economic uncertainty weakens the effects of the monetary policy on the economy.
Originality/value: this is a historical economics paper. Given the turmoil and uncertainty associated with the inter-war period, an empirical investigation of UK money demand is an interesting exercise. This is the first such paper.
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JES-paper revised twice
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10-1108_JES-03-2022-0167
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Accepted/In Press date: 17 December 2022
e-pub ahead of print date: 9 January 2023
Published date: 9 January 2023
Additional Information:
Funding Information: the author thanks two anonymous referees for several useful comments and suggestions. Any remaining errors and omissions are the author's sole responsibility.
Keywords:
Causality, Cointegration, Inter-war ear, Money demand, Uncertainty
Identifiers
Local EPrints ID: 474691
URI: http://eprints.soton.ac.uk/id/eprint/474691
ISSN: 0144-3585
PURE UUID: 2f2d64e9-18e3-4299-b800-687b7164558e
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Date deposited: 01 Mar 2023 17:57
Last modified: 17 Mar 2024 02:51
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