Lisbeth Funding la Cour
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Lisbeth Funding la Cour: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Abstract: This paper examines the relation between monetary asset components and some of the
variables that traditionally enter into aggregate money demand relations. This is done for
Danish data within the natural framework of a multivariate econometric model. The
purpose of the study is to investigate issues in relation to the level and weighting of a
monetary aggregate. We show that within this model it is possible to identify monetary
aggregates at different levels of aggregation and that for the narrow aggregate (M1) equal
weighting of the components are permitted. For the broader aggregates, (M2) or (M2-M1),
equal weighting is no longer appropriate. These findings are not contradictory to what we
would expect from aggregation and index number theory. Finally, the overall identifica-tion
of the stationary (or long-run) structure points towards a co-existence of a liquid and
a less liquid money demand relation which is interpreted as an indication of the
possibility of splitting the total money demand relation with respect to different motives
for holding money.
Keywords: Monetary asset components; Aggregate money demand; Denmark; Demand relation
JEL-codes: E41
24 pages, July 18, 1999
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