Aggregate vs. disaggregate data analysis—a paradox in the estimation of a money demand function of Japan under the low interest rate policy (original) (raw)

On the Stability of Long-Run M2 Demand in Japan

The Japanese Economic Review, 2000

In this study we examine the stability of long-run broad money demand in Japan. In contrast to previous studies of Japanese broad money demand, we use a series of tests designed speci®cally to test for structural instability in the presence of I(1) processes. According to these tests, the Japanese broad money demand function appears to be stable over a period of ®nancial innovation and deregulation. JEL Classi®cation Numbers: E41, C22.

Does Interest Rate Volatility Affect the US M1 Demand Function? Evidence From Cointegration

The Manchester School, 1999

The long-run demand for US real M1 in the post Second World War period (1954^96) is investigated. The empirical investigation is conducted by means of Johansen multivariate cointegration tests and error correction models. Results show that a stationary long-run M1 demand function is only found when the interest rate volatility or the in£ation rate volatility is included in the function. The conditional variance estimate from the GARCH(1, 1) model is used as volatility in the empirical work. Results from the error correction models indicate causality between real M1 and its determinants, including interest rate (and in£ation rate) volatility. A signi¢cant presence of interest rate volatility in the money demand function may a¡ect economic performance and monetary policy.

“The Dynamics and Estimation of Short-Run Money Demand.”

Federal Reserve Bank of St. Louis Review

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An Extremely Low Interest Rate Policy and the Shape of the Japanese Money Demand Function: A Nonlinear Cointegration Approach

Macroeconomic Dynamics, 2009

This paper explores the shape of the Japanese money demand function in relation to the historical path of the Bank of Japan's policy rate by employing Saikkonen and Choi's (2004) cointegrating smooth transition model. The nonlinear model provides a unified econometric framework, not only for pursuing the time profile of interest elasticity, but also to test the linearity of the Japanese money demand function. The test results for the linearity of the Japanese money demand function provide evidence of nonlinearity with a semi-log model and linearity with a double-log model.

Monetary policy and the term structure of interest rates in Japan

1991

This paper studies the relation between short-term and long-term interest rates in Japan. The paper finds that there was a change in the behavior of the Japanese term structure in the mid-1980's. Short-term rates became less forecastable from their own past history; at the same time, the ability of the Japanese yield curve to forecast short-term rates increased. In this sense the expectations theory has become a more appropriate description of the Japanese term structure, even though the theory is rejected at conventional levels of statistical significance.