The representative household's demand for money in a cointegrated VAR model
Author: Pétursson, Thórarinn G.
Source: The Econometrics Journal, Volume 3, Number 2, December 2000 , pp. 162-176(15)
Abstract:A representative household model with liquidity services directly in the utility function is used to derive a stable, data congruent error correction model of broad money demand in Iceland. This model gives a linear, long-run relation between real money balances, output and the opportunity cost of holding money that is used to over-identify the cointegrating space. The over-identifying restrictions suggest that the representative household is equally averse to variations in consumption and real money holdings. Finally, a forward-looking interpretation of the short-run dynamics, assuming quadratic adjustment costs, cannot be rejected by the data.
Document Type: Research article
Publication date: 2000-12-01