The results of past research on the long-run stationarity of money demand has been mixed. We explore the possibility that these mixed results are related to the aggregate nature of standard measures of money by investigating the disaggregated money components to test for long-run stationarity. A stochastic trends model for a vector of disaggregated monetary measures is estimated. Our findings indicate that only the time deposit component shows consistent evidence of cointegration. Since time deposits represent two-thirds of M2, this may be the reason why past research has found marginal support for M2 stationarity, but limited support for narrower monetary aggregates.
ASJC Scopus subject areas
- Economics and Econometrics