Generalized Functional Forms and Demand for Money in an Open Economy: The Case of the United Kingdom

7 Pages Posted: 17 Jun 2014 Last revised: 30 Dec 2016

See all articles by Elyas Elyasiani

Elyas Elyasiani

Temple University - Department of Finance

Ali Zadeh

Susquehanna University - School of Business

Date Written: 1995

Abstract

The purpose of this paper are twofold: first, to apply a Box-Cox model to the UK money demand relationship within an open economy framework in order to empirically investigate the proper functional form supported by the data in this general setting. Secondly, to test for the proper scale variable in the UK money demand function within the open economy Box-Cox specification. These improvements enhance the accuracy of our measures of monetary and fiscal policy effects and our understanding of the interdependence between different economies. The empirical results derived here reject the restrictive linear and log specifications in favour of the general Box-Cox model under both income and consumption-based money demand specifications. The traditional income-based model, however, escapes unharmed from the challenge put forward by Mankiew and Summers (1986).

Suggested Citation

Elyasiani, Elyas and Zadeh, Ali, Generalized Functional Forms and Demand for Money in an Open Economy: The Case of the United Kingdom (1995). Applied Economics, Vol. 27, 1995, 737-743; Fox School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2451234

Elyas Elyasiani (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

Ali Zadeh

Susquehanna University - School of Business

Selinsgrove, PA 17870
United States

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