Scandinavian Working Papers in Economics
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Bank of Finland Research Discussion Papers, Bank of Finland

No 3/1997:
Limited and Full Information Estimation of the Rational Expectations Demand for Money Model: Application to Finnish M1

Antti Ripatti ()

Abstract: We compare parameter estimates of the intertemporal money-in-the-utility-function model estimated using the Generalized Method of Moments and the Full Information Maximum Likelihood method. The process driving the forcing variables is approximated with vector autoregression. The FIML estimates of the deep parameters are reasonable, although some of them differ from the corresponding GMM estimates. The simulation experiments suggest that the differences are not very big in practice and that they are connected with adjustment costs. The cross-equation restrictions are clearly rejected, as is typical for these kinds of models; exogeneity restrictions are rejected as well.

Keywords: money-in-the-utility-function model; demand for money; narrow money; Generalized Method of Moments; Full Information Maximum Likelihood; (follow links to similar papers)

JEL-Codes: C22; C32; C52; E41; (follow links to similar papers)

31 pages, March 21, 1997

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