Open Economies Review

, Volume 3, Issue 3, pp 323–343 | Cite as

International comparisons of money demand

  • James M. Boughton
Review Essay


Many studies of the demand for money, covering a wide variety of economies, have demonstrated the importance of financial innovations and shifts in monetary policy regimes, but they have also illustrated the difficulty of measuring and assessing such changes. Because innovations and regime shifts have differed markedly across countries, international comparisons can help identify their effects. This paper reviews the literature on money demand comparisons, focusing primarily on industrial countries. It finds that innovations have had widespread effects, but also that the demand for money is not generally less stable now than it was before those changes occurred.

Key words

money demand comparative studies monetary policy financial innovations cointegration error correction models 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Adekunle, J. O. (1968). “The Demand for Money: Evidence from Developed and Less Developed Economies”,Staff Papers 15, Washington: International Monetary Fund, 220–264.Google Scholar
  2. Agenor, P. R. and M. S. Khan (1992) “Foreign Currency Deposits and the Demand for Money in Developing Countries”, IMF Working Paper 92/1, Washington: International Monetary Fund.Google Scholar
  3. Al-Khuri, S. and S. M. Nsouli (1978) “The Speed of Adjustment of the Actual to the Desired Money Stock: A Comparative Study”,European Economic Review 11, 181–206.Google Scholar
  4. Angeloni, I., C. Cottarelli, and A. Levy (1991) “Cross-Border, Deposits and Monetary Aggregates in the Transition to EMU”, IMF Working Paper 91/114, Washington: International Monetary Fund.Google Scholar
  5. Arango, S. and M. I. Nadiri (1981) “Demand for Money in Open Economies”,Journal of Monetary Economics 7(1), 69–83.Google Scholar
  6. Arize, A. and G. Ndubizu (1990) “Modelling Money Demand Functions with Exchange Rates”,The International Journal of Finance 2, 88–104.Google Scholar
  7. Arrau, P. and J. De Gregorio (1990) “Financial, Innovation and Money Demand: Theory and Empirical Implementation”, unpublished paper, Washington: International Monetary Fund.Google Scholar
  8. Arrau, P., J. De Gregorio, C. Reinhart, and P. Wickham (1991) “The Demand for Money in Developing Countries: Assessing the Role of Financial Innovation”, IMF Working Paper 91/45, Washington: International Monetary Fund.Google Scholar
  9. Artis, Michael J., R. C. Bladin-Hovell, and W. Zhang (1992), “A European Money Demand Function”, Working paper, University of Manchester.Google Scholar
  10. Artis, M. J. and M. K. Lewis (1976) “The Demand for Money in the United Kingdom: 1963–73”,The Manchester School of Economic and Social Studies 44, 147–181.Google Scholar
  11. Atkinson, P., A. Blundell-Wignall, M. Rondoni, and H. Ziegelschmidt (1984) “The Efficacy of Monetary Targeting: The Stability of Demand for Money in Major OECD Countries”,OECD Economic Studies.Google Scholar
  12. Bahmani-Oskooee, M. and M. Malixi (1991) “Exchange Rate Sensitivity of the Demand for Money in Developing Countries”,Applied Economics 23, 1377–1384.Google Scholar
  13. Bahmani-Oskooee, M. and M. Pourheydarian (1990) “Exchange Rate Sensitivity of Demand for Money and Effectiveness of Fiscal and Monetary Policies”,Applied Economics 22, 917–925.Google Scholar
  14. Blejer, M. (1978). “Black-Market Exchange-Rate Expectations and the Domestic Demand for Money: Some Empirical Results”,Journal of Monetary Economics 4(4), 767–773.Google Scholar
  15. Bomhoff, E. J. (1991) “Stability of Velocity in the G-7 Countries: A Kalman Filter Approach”,Staff Papers 38, Washington: International Monetary Fund, 626–642.Google Scholar
  16. Boorman, J. T. (1982) “The Evidence on the Demand for Money: Theoretical Foundations and Empirical Results”, In T. M. Havrilesky and J. T. Boorman (eds),Money Supply, Money Demand, and Macroeconomic Models, 2nd ed. Arlington Heights, IL: H. Davidson, pp. 248–304.Google Scholar
  17. Bordo, M. D. and L. Jonung (1987)The Long-Run Behavior of the Velocity of Circulation: The International Evidence. New York: Cambridge University Press.Google Scholar
  18. Bordo, M. D. and L. Jonung (1990) “The Long-Run Behavior of Velocity: The Institutional Approach Revisited”,Journal of Policy Modeling 12, 165–197.Google Scholar
  19. Boughton, J. M. (1979) “The Demand for Money in Major OECD Countries”,OECD Economic Outlook: Occasional Studies, 35–57.Google Scholar
  20. Boughton, J. M. (1981) “Recent Instability of the Demand for Money: An International Perspective”,Southern Economic Journal 47, 579–597.Google Scholar
  21. Boughton, J. M. (1991) “Long-Run Money Demand in Large Industrial Countries”,Staff Papers 38, Washington: International Monetary Fund, pp. 1–32.Google Scholar
  22. Boughton, J. M. (1991) “Money Demand in Five Major Countries: Estimating and Interpreting Error Correction Models”. In M. P. Taylor (ed),Money and Financial Markets, Oxford: Basil Blackwell.Google Scholar
  23. Boughton, J. M. and G. S. Tavlas (1990) “Modeling Money Demand in Large Industrial Countries: Buffer Stock and Error Correction Approaches”,Journal of Policy Modeling 12, 433–461.Google Scholar
  24. Boughton, J. M. and G. S. Tavlas (1991) “What Have We Learned About Estimating the Demand for Money? A Multicountry Evaluation of Recent Approaches”, unpublished paper, Washington: International Monetary Fund, October (An earlier version was issued as IMF Working Paper 91/16 (February 1991)).Google Scholar
  25. Cagan, P. (1956) “The Monetary Dynamics of Hyperinflation”, In M. Friedman (ed),Studies in the Quantity Theory of Money. Chicago: University of Chicago Press.Google Scholar
  26. Cambiaso, J. E. (1978)La Demanda de Dinero en América Latina. Mexico City: Centro de Estudios Monetarios Latinoamericanos.Google Scholar
  27. Campbell, C. D. (1970) “The Velocity of Money and the Rate of Inflation: Recent Experiences in South Korea and Brazil”, In D. Meiselman (ed),Varieties of Monetary Experience. Chicago: University of Chicago Press, pp. 339–386.Google Scholar
  28. Canarella, G. and R. M., Roseman (1978) “The Demand for Money: Some Evidence from Western Europe”,Schweizerisches Zeitschrift für Volkwirtschaft und Statistik 1, 9–17.Google Scholar
  29. Carr, J. and M. R. Darby (1981) “The Role of Money Supply Shocks in the Short-Run Demand for Money”,Journal of Monetary Economics 8, 183–199.Google Scholar
  30. Charemza, W. W. and S. Ghatek (1990) “Demand for Money in a Dual-Currency, Quantity-Constrained Economy: Hungary and Poland, 1956–85”,The Economic Journal 100, 1159–1172.Google Scholar
  31. Coutière, A. (1976) “Taux de liquidité dans les differents pays occidentaux” Banque de France,Statistiques et Études Financières 22, 3–25, série orange.Google Scholar
  32. Crockett, A. D. and O. J. Evans (1980) “Demand for Money in Middle Eastern Countries,”Staff Papers 27(3), Washington: International Monetary Fund, 543–577.Google Scholar
  33. Cuthbertson, K. and M. P. Taylor (1990) “The Case of the Missing Money' and the Lucas Critique,”Journal of Macroeconomics 12, 437–455.Google Scholar
  34. Darrat, A. F. (1986) “Demand for Money in Some Major OPEC Members: Regression Estimates and Stability Results,”Applied Economics 18, 127–142.Google Scholar
  35. Darrat, A. F. (1986) “Monetization and Stability of Money Demand in Developing Countries: The Latin American Case,”Savings, and Development 10(1), 59–70.Google Scholar
  36. den Butter, F. A. G. and M. M. G. Fase (1981) “The Demand for Money in EEC Countries,”Journal of Monetary Economics 8(2), 201–230.Google Scholar
  37. Doblin, E. M. (1951) “The Ratio of Income to Money Supply: An International Survey,”The Review of Economics and Statistics 33, 201–213.Google Scholar
  38. Dolado, J. J., T. Jenkinson, and S. Sosyilla-Rivero (1990) “Cointegration and Unit Roots,”Journal of Economic Surveys 4 (3), 249–273.Google Scholar
  39. Domowitz, I. and C. S. Hakkio (1990) “Interpreting an Error Correction Model: Partial Adjustment, Forward-Looking Behavior, and Dynamic International Money Demand,”Journal of Applied Econometrics 5, 29–46.Google Scholar
  40. Dooley, M. P. and F. Spinelli, (1989) “The Early Stages of Financial Innovation and Money Demand in France and Italy,”The Manchester School of Economic and Social Studies 57(2), 107–124.Google Scholar
  41. Driscoll, M. J. and A. K. Lahiri (1983) “Income-Velocity of Money in Agricultural Developing Economics,”The Review of Economics and Statistics 65(3), 393–401.Google Scholar
  42. Ezekial, H. and J. O. Adekunle (1969) “The Secular Behavior of Income Velocity: An International Cross-section Study,”Staff Papers 16(2), Washington: International Monetary Fund, 224–237.Google Scholar
  43. Faig, M. (1989) “Seasonal Fluctuations and the Demand for Money,”Quarterly Journal of Economics.Google Scholar
  44. Fair, R. C. (1987) “International Evidence on the Demand for Money,”Review of Economics and Statistics 69, 437–480.Google Scholar
  45. Fan, L. S. and Z. R. Liu (1971) “Demand for Money in Asian Countries: Empirical Evidence,”The Indian, Economic Journal 18(4–5) 475–481.Google Scholar
  46. Fase, M. M. G. and J. B. Kuné (1975) “The Demand for Money in Thirteen European and Non-European Countries: A Tabular Survey,”Kredit und Kapital 8, 410–419.Google Scholar
  47. Friedman, M. and A. J. Schwartz (1982)Monetary Trends in the United States and the United Kingdom: Their Relation to Income, Prices, and Interest Rates. 1867–1975. Chicago: University of Chicago Press, for the National Bureau of Economic Research.Google Scholar
  48. Friedman, M. and A. J. Schwartz (1991) “Alternative Approaches to Analyzing Economic Data,”The American Economic Review 81(1), 39–49.Google Scholar
  49. Fry, M. J. (1978) “The Permanent Income Hypothesis in Underdeveloped Economies: Additional Evidence,”Journal of Development Economics, 5, 399–402.Google Scholar
  50. Gandolfi, A. E. and J. R. Lothian (1983) “International Price Behavior and the Demand for Money,”Economic Inquiry 21(3), 295–311.Google Scholar
  51. Goldfeld, S. (1973) “The Demand for Money Revisited,”Brookings Papers on Economic Activity (3), 577–646.Google Scholar
  52. Goldfeld, S. (1976) “The Case of the Missing Money,”Brookings Papers on Economic Activity (1), 683–739.Google Scholar
  53. Goldfeld, S. and D. E. Sichel (1990) “The Demand for Money.” In Benjamin M. Friedman and Frank H. Hahn (eds),Handbook of Monetary Economics. Amsterdam: Elsevier Science Publishers, pp. 299–356.Google Scholar
  54. Graves, P. E. (1978) “New Evidence on Income and the Velocity of Money,”Economic Inquiry 16, 53–68.Google Scholar
  55. Grivoyannis, E. C. (1990)Current Issues in Monetary Policy in the United States and Japan: The Predictability of Money Demand. New York: Praeger.Google Scholar
  56. Hacche, G. (1974) “The Demand for Money in the United Kingdom: Experience Since 1971,”Bank of England Quarterly Bulletin 14 284–305.Google Scholar
  57. Hamburger, M. J. (1977) “The Demand for Money in an Open Economy: Germany and the United Kingdom,”Journal of Monetary Economics 3(1), 25–40.Google Scholar
  58. Heller, H. R. and M. S. Khan (1979) “The Demand for Money and the Term Structure of Interest Rates,”Journal of Political Economy 87(1), 109–129.Google Scholar
  59. Hendry, D. F. and N. R. Ericsson (1991a) “An Econometric Analysis of U.K. Money Demand inMonetary Trends in the United States and the United Kingdom by M. Friedman and A. J. Schwartz,”The American Economic Review 81(1), 8–38.Google Scholar
  60. Hendry, D. F. and N. R. Ericsson (1991b) “Modeling the Demand for Narrow Money in the United Kingdom and the United States,”European Economic Review 35, 833–886.Google Scholar
  61. Hendry, D. F. and G. E. Mizon (1978) “Serial Correlation as a Convenient Simplification, Not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England,”The Economic Journal 88, 549–563.Google Scholar
  62. Hoeller, P. and P. Poret (1991) “P-star as an Indicator of Inflationary Pressure,”OECD Economic Studies 17, 7–29.Google Scholar
  63. Holmans, A. E. (1961) “The Quantity of Money, Gross National Product, and the Price Level: Some International Comparisons,”Scottish Journal of Political Economy 8, 28–44.Google Scholar
  64. Howard, D. H. and K. H. Johnson (1983) “The Behavior of Monetary Aggregates in Major Industrialized Countries,”Journal of Money, Credit and Banking 15(4), 455–468.Google Scholar
  65. Isard, P. and L. Rojas-Suarez (1986) “Velocity of Money and the Practice of Monetary Targeting: Experience, Theory, and the Policy Debate.” InStaff Studies for the World Economic Outlook, Washington: International Monetary Fund, pp. 73–114.Google Scholar
  66. Johansen, S. (1988) “Statistical Analysis of Cointegration Vectors,”Journal of Economic Dynamics and Control 12, 231–254.Google Scholar
  67. Johansen, S. and K. Juselius (1990) “Maximum Likelihood Estimation and Inference on Cointegration, with Applications to the Demand for Money,”Oxford Bulletin of Economics and Statistics 52, 169–210.Google Scholar
  68. Kaufman, G. G. and C. M. Latta (1966) “The Demand for Money: Preliminary Evidence from Industrial Countries,”Journal of Financial and Quantitative Analysis 1, 75–89.Google Scholar
  69. Kearney, C. and R. MacDonald (1990) “The Stability of Monetary Velocities in the United Kingdom and the United States, 1871–1975: A Cointegration Analysis” Discussion Paper No. E9003, Sydney, Australia: School of Business and Technology, University of Western Sydney.Google Scholar
  70. Kenny, L. W. (1991) “Cross-Country Estimates of the Demand for Money and its Components,”Economic Inquiry 29, 696–705.Google Scholar
  71. Khan, A. H. (1982) “Permanent Income, Inflation Expectations and the Money Demand Function in Developing Countries,”The Pakistan Development Review 21(4), 259–273.Google Scholar
  72. Khan, M. S. (1975) “The Monetary Dynamics of Hyperinflation: A Note,”Journal of Monetary Economics 1(3), 355–362.Google Scholar
  73. Khan, M. S. (1977) “The Variability of Expectations in Hyperinflations,”Journal of Political Economy 85(4), 817–827.Google Scholar
  74. Khan, M. S. (1977) “Variable Expectations and the Demand for Money in High-Inflation Countries,”The Manchester School of Economic and Social Studies 45(3), 270–293.Google Scholar
  75. Khan, M. S. (1980) “Monetary Shocks, and the Dynamics of Inflation,”Staff Papers 27(2) Washington: International Monetary, Fund, 250–284.Google Scholar
  76. Kole, L. S. and M. P. Leahy (1991) “The Usefulness of P* Measures for Japan and Germany,” International Finance Discussion Paper No. 414, Washington: Board of Governors of the Federal Reserve System.Google Scholar
  77. Kremers, J. J. M. and T. D. Lane (1990) “Economic and Monetary Integration and the Aggregate Demand for Money in the EMS,”Staff Papers 37(4), Washington: International Monetary Fund, 777–805.Google Scholar
  78. Kremers, J. J. M. and T. D. Lane (1992) “European Monetary Union Raises Questions About Policy Targets and Indicators,”IME Survey 21(9), Washington: International Monetary Fund, 136–139.Google Scholar
  79. Kumah, E. O. (1989) “Monetary Concepts and Definitions,” IMF Working Paper 89/92, Washington: International Monetary Fund.Google Scholar
  80. Laidler, D. E. W. (1985)The Demand for Money: Theories and Evidence, 3rd ed. New York: Dunn-Donnelley (2nd ed., 1977).Google Scholar
  81. Latané, H. (1954) “An Empirical Test of the Income Velocity of Money and Interest Rates,”Southern Economic Journal 21, 84–86.Google Scholar
  82. Latané, H. (1963) “An Inter-Country Comparison of Interest Rates and Income Velocity,”Southern Economic Journal 30, 75–77.Google Scholar
  83. Leponiemi, A. (1966)On the Demand and Supply of Money: The Evidence from the Quarterly Time Series in the United States, the United Kingdom and Finland 1949–1962. Helsinki: The Finnish Economic Association.Google Scholar
  84. MacKinnon, J. G. and R. D. Milbourne (1984), “Monetary Anticipations and the Demand for Money,”Journal of Monetary Economics 13(2), 263–274.Google Scholar
  85. McCracken, P. (Chairman) (1977)Towards Full Employment and Price Stability. Report to the OECD by a Group of Independent Experts, Paris: OECD.Google Scholar
  86. Melitz J. and H. Correa (1970) “International Differences in Income Velocity,”The Review of Economics and Statistics 52(1), 12–17.Google Scholar
  87. Milbourne, R. (1988) “Disequilibrium Buffer Stock Models: A Survey,”Journal of Economic Surveys 2(3), 187–208.Google Scholar
  88. Moufti, A. M. (1976)The Demand for Money in Less Developed Countries: The Case of Syria, Iraq, and Turkey, doctoral dissertation, Philadelphia: University of Pennsylvania.Google Scholar
  89. Perlman, M. (1970) “International Differences in Liquid Assets Portfolios.” In. D. Meiselman (ed),Varieties of Monetary Experience. Chicago: University of Chicago Press, pp. 297–337.Google Scholar
  90. Portes, R. and D. Winter (1978) “The Demand for Money and for Consumption Goods in Centrally Planned Economies,”The Review of Economics and Statistics 60(1), 8–18.Google Scholar
  91. Ramirez-Rojas, C. L. (1985) “Currency Substitution in Argentina, Mexico, and Uruguay,”Staff Papers 32(4), Washington: International Monetary Fund, 629–667.Google Scholar
  92. Shimamoto, R. (1983) “Monetary Control in Japan.” In Paul Meek (ed),Central Bank Views on Monetary Targeting, New York: Federal Reserve Bank of New York.Google Scholar
  93. Siklos, P. L. (1992) “Income Velocity and Institutional Change: Some New Time Series Evidence, 1870–1986,” forthcoming inJournal of Money, Credit and Banking.Google Scholar
  94. Simmons, R. (1991) “An Error Correction Approach to Demand for Money in Five African Developing Countries,”Salford Papers in Economics, University of Salford.Google Scholar
  95. Stock, J. H. and M. W. Watson (1991) “A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems,” Working Paper WP-91-3, Federal Reserve Bank of Chicago.Google Scholar
  96. Sushka, M. E. and M. B. Slovin (1976) “Joint Generalized Least Squares Estimation of Money Demand: A Multi-Nation Study,” In Richard Brealey and Graeme Rankine (eds),European Finance Association: 1975 Proceedings. Amsterdam: North-Holland, pp. 285–307.Google Scholar
  97. Suzuki, Y. (1983) “Interest Rate Decontrol, Financial Innovation and the Effectiveness of Monetary Policy,” Bank of Japan,Monetary and Economic Studies.Google Scholar
  98. Taylor, M. P. (1986) “From the General to the Specific: The Demand for M2 in Three European Countries,”Empirical Economics 11, 243–261.Google Scholar
  99. Taylor, M. P. (1991) “The Hyperinflation Model of Money Demand Revisited,”Journal of Money, Credit and Banking 23(3 (part 1)), 327–351.Google Scholar
  100. Phylaktis, K. and M. P. Taylor (1992) “The Demand for Money During High Inflation Episodes: Some Latin American Evidence on the Cagan Model,” forthcoming,Review of Economics and Statistics.Google Scholar
  101. Tseng, W. and R. Corker (1991)Financial Liberalization, Money Demand, and Monetary Policy in Asian Countries, Occasional Paper 84, Washington: International Monetary Fund.Google Scholar
  102. Tsurumi, H. and W. Kan (1991) “A Gradual Switching Regression and its Application to Testing the Stability of Money Demand Functions in U.S., Canada, and Japan,”The Economic Studies Quarterly 42, 12–26.Google Scholar

Copyright information

© Kluwer Academic Publishers 1992

Authors and Affiliations

  • James M. Boughton
    • 1
  1. 1.International Monetary FundWashington, D.C.USA

Personalised recommendations