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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page The Demand for Broad Money in the United Kingdom, 1878-1993
Neil R. Ericsson; David F. Hendry; Kevin M. Prestwich

Abstract:  Using annual data from Friedman and Schwartz (1982), Hendry and Ericsson (1991a) developed an empirical model of the demand for broad money in the United Kingdom over 1878-1975. We update that model over 1976-1993, accounting for changed data definitions and clarifying the concept of constancy. With appropriate measures of opportunity cost and credit deregulation, the model's parameters are empirically constant over the extended sample, which was economically turbulent. Policy implications follow for parameter nonconstancy and predictive failure, causation between money and prices, monetary targeting, deregulation and financial innovation, and the effect of policy on economic agents' behavior.

Full paper (495 KB PDF) | Full paper (1162 KB Postscript)

Constancy, financial innovation, Friedman and Schwartz, money demand

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