Econometric Tests of Alternative Scale Variables in Money Demand in Open Economies International Evidence from Selected OECD Countries
The Quarterly Review of Economics and Finance 39 (1999) 193–211
19 Pages Posted: 17 Jun 2014
Date Written: 1999
The choice of the scale variable in the money demand function is important because of its striking implications on the magnitude and direction of the domestic monetary and fiscal policy effects and effectiveness of international policy coordination. In this study several tests are applied to the money demand functions of Japan, Germany, Canada, France, and Italy in an open economy context to determine the appropriate scale variable for each country. Both narrow and broad definitions of money are used. Income, disposable income, consumption, private spending, and domestic absorption are investigated as contenders for the scale variable. The findings indicate that the scale variable is country-specific, rather than universal, and it is sensitive to the definition of money.
Note: © 1999 Board of Trustees of the University of Illinois. All rights reserved.
Keywords: Money demand, Non-nested, Scale variable, OECD
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