RELATIVE PRICES IN THE UK PERSONAL SECTOR MONEY DEMAND FUNCTION

Non-parametric demand analysis is used in order to establish admissibl e monetary aggregates and also to establish a potential role for relat ive prices in the money demand function. A conventional money demand s pecification is then contrasted with a money demand function which con tains the relative prices of durables, non-durables and services as ad ditional regressors. Evidence from long run cointegration analysis, sh ort run error correction models and non-nested testing all confirm a r ole for relative prices in the UK personal sector's money demand funct ion.