Another look at long-run money demand

This paper investigates the long-run demand for MI in the postwar United States. Previous studies, based on data ending in the late 1980s, are inconclusive about the parameters of postwar money demand. This paper obtains precise estimates of these parameters by extending the data through 1996. The income elasticity of money demand is approximately 0.5, and the interest semi-elasticity is approximately -0.05. These parameters are significantly smaller in absolute value than the corresponding parameters for the prewar period. A caveat is that the analysis assumes there is no trend in money demand resulting from technological change. (C) 2001 Elsevier Science B.V. All rights reserved.