Another look at long-run money demand

This paper investigates the long-run demand for MI in the postwar United St ates. Previous studies, based on data ending in the late 1980s, are inconcl usive about the parameters of postwar money demand. This paper obtains prec ise estimates of these parameters by extending the data through 1996. The i ncome elasticity of money demand is approximately 0.5, and the interest sem i-elasticity is approximately -0.05. These parameters are significantly sma ller in absolute value than the corresponding parameters for the prewar per iod. A caveat is that the analysis assumes there is no trend in money deman d resulting from technological change. (C) 2001 Elsevier Science B.V. All r ights reserved.