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"International Evidence on the Demand for Money," The Review of Economics and Statistics, 1987.

Paper: pdf file

One of the current questions in the literature on the demand for money is whether the adjustment of actual to desired money holdings is in nominal or real terms. The paper describes a simple procedure that can be used to test the nominal against the real hypothesis. The test is carried out for 27 countries. The paper also tests the structural stability of the demand for money equations and the correctness of the dynamic specification.

The results are strongly in favor of the nominal adjustment hypothesis. There is, however, some evidence of moderate structural instability before and after 1973. The instability does not affect the conclusion that the nominal adjustment hypothesis dominates the real adjustment hypothesis.


This paper estimates and analyzes demand for money equations for 27 countries. These countries are part of the MC model. Some of the results in this paper are updated in Chapter 6, Section 6.7, in 1994#2.