Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2002:6: The Demand for Monetary Assets in the UK; a Locally Flexible Demand System Analysis

Thomas Elger
Additional contact information
Thomas Elger: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: This study provides strong empirical support for modeling the demand for monetary assets within a consumer demand framework. We estimate a linearised locally flexible almost ideal demand system, containing five monetary assets, over the period 1991Q4 to 1998Q4. Estimating the system in differences is a convenient method to account for possible non-stationarity in the data, a major concern for applied macroeconomists. All significant un-compensated own-price elasticities are negative. The compensated own-price elasticities are insignificant and the majority of the income elasticities are significant. Theoretical homogeneity and symmetry propositions are satisfied.

Keywords: Money Demand; Almost Ideal Demand System

JEL-codes: C43; D12; E41

34 pages, February 28, 2002

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