Research Discussion Papers, Bank of Finland
Limited and Full Information Estimation of the Rational Expectations Demand for Money Model: Application to Finnish M1
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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