DP3249 Non-Linear Equilibrium Corection in US Real Money Balances, 1869-1997

Author(s): David Peel, Lucio Sarno, Mark P Taylor
Publication Date: March 2002
Keyword(s): adjustment costs, demand for money, equilibrium correction, non-linear dynamics
JEL(s): E41
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3249

Several theoretical models of money demand imply non-linear functional forms for the aggregate demand for money characterized by smooth adjustment towards long-run equilibrium. In this Paper, we propose a non-linear equilibrium correction model of US money demand, which is shown to be stable over the sample period from 1869 to 1997.