COINTEGRATION, ERROR-CORRECTION, AND THE DEMAND FOR MONEY IN MEXICO

Cointegration, Error Correction and the Demand for Money in Mexico. - Estimates of the long-run demand for narrow and broad definitions of t he Mexican money supply over the period 1980Q1-1994Q1 suggest that a s ingle cointegrating relationship exists for real money balances (M1 an d M2), a scale variable (real GDP or real consumption expenditure), an d the 91-day treasury bill rate. The results from short-run dynamic eq uations favor M2 as the monetary aggregate to target and suggest that real GDP rather than real private consumption is a more appropriate sc ale variable in the demand for money function for Mexico.