Please use this identifier to cite or link to this item: http://buratest.brunel.ac.uk/handle/2438/999
Title: Fractional Cointegration And Aggregate Money Demand Functions
Authors: Caporale, GM
Gil-Alana, LA
Keywords: Money Demand, Velocity, Fractional Integration, Fractional Cointegration
Issue Date: 2005
Publisher: Brunel University
Citation: Economics and Finance Working papers, Brunel University, 05-01
Abstract: This paper examines aggregate money demand relationships in five industrial countries by employing a two-step strategy for testing the null hypothesis of no cointegration against alternatives which are fractionally cointegrated. Fractional cointegration would imply that, although there exists a long-run relationship, the equilibrium errors exhibit slow reversion to zero, i.e. that the error correction term possesses long memory, and hence deviations from equilibrium are highly persistent. It is found that the null hypothesis of no cointegration cannot be rejected for Japan. By contrast, there is some evidence of fractional cointegration for the remaining countries, i.e., Germany, Canada, the US, and the UK (where, however, the negative income elasticity which is found is not theory-consistent). Consequently, it appears that money targeting might be the appropriate policy framework for monetary authorities in the first three countries, but not in Japan or in the UK.
URI: http://bura.brunel.ac.uk/handle/2438/999
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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