The instability of the demand for money : a time series analysis of money, income, prices and interest rates

The Dissertation utilizes time-series and econometric methods in the analysis of the demand for real money balances in the United States since 1959, with emphasis on the relationships between money, income, prices and interest rates over periods where money demand behavior appears unstable. Preliminary evidence indicates that relatively 'stable' results obtain from estimation of the conventional demand equation over the 1959(1) to 1979(4) period. Detailed analysis of the estimated residuals suggest however, that transitory changes in the temporal behavior of Ml appear to have occurred and may be a source of predictive failure in the conventional specification. Further empirical analysis utilizing recursive estimates of alternative models and variable sample moments tends to comfirm this hypothesis and provides a basis for the characterization of the conventional money demand function as a 'reduced-form' equation. Recursive estimation of univariate ARIMA and VAR models suggest that explicit treatment of exogenous 'interventions' would be of value, and present new 'puzzles' for applied analysts and policymakers.