Research Discussion Papers, Bank of Finland
No 18/1996:
Stability of the Demand for M1 and Harmonized M3 in Finland
Antti Ripatti ()
Abstract: We derive a theoretical model for the demand for money
using the money-in-the-utility-function approach. The steady-state –
utility function – parameters of the model of narrow money (M1) estimated
with cointegration techniques are stable over the foreign exchange rate
regime shift; whereas in the model of harmonized M3 (M3H) they are not
stable. The theoretical model fits the M1 data. The adjustment cost
parameters of the M1 model describing the dynamics of the demand for money
are stable over the sample period. The adjustment cost parameters of the
M3H model are not stable. These results suggest that from the Finnish point
of view M1 would be a more appropriate intermediate target for monetary
policy than harmonized M3.
Keywords: money-in-the-utility-function model; structural breaks; demand for money; narrow money; harmonized M3; (follow links to similar papers)
JEL-Codes: C22; C52; E41; (follow links to similar papers)
33 pages, September 4, 1996
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