Cointegration tests of a long-run relation between money demand and the effective exchange rate

For the period starting with the floating of the US dollar we find evidence that long-run stationarity of the demand function for M2 (but not M1) requires inclusion of the effective exchange rate. These results lend some support to McKinnon's hypothesis that nonstationarity in the demand for mo...

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Bibliographic Details
Published in:Journal of international money and finance 1992-02, Vol.11 (1), p.107-114
Main Authors: McNown, Robert, Wallace, Myles S.
Format: Article
Language:English
Subjects:
Economic theory
Foreign exchange rates
GNP
Gross National Product
Mathematical models
Money supply
Studies
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Summary:For the period starting with the floating of the US dollar we find evidence that long-run stationarity of the demand function for M2 (but not M1) requires inclusion of the effective exchange rate. These results lend some support to McKinnon's hypothesis that nonstationarity in the demand for money can be resolved by inclusion of the exchange rate. (JEL F41, E41).
ISSN:0261-5606
1873-0639
DOI:10.1016/0261-5606(92)90024-R