Skip to main content
SpringerLink
Log in

International comparisons of money demand

  • Review Essay
  • Published:
Open Economies Review Aims and scope Submit manuscript

Abstract

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • 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 

  • 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 

  • 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 

  • 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 

  • Arango, S. and M. I. Nadiri (1981) “Demand for Money in Open Economies”,Journal of Monetary Economics 7(1), 69–83.

    Google Scholar 

  • Arize, A. and G. Ndubizu (1990) “Modelling Money Demand Functions with Exchange Rates”,The International Journal of Finance 2, 88–104.

    Google Scholar 

  • Arrau, P. and J. De Gregorio (1990) “Financial, Innovation and Money Demand: Theory and Empirical Implementation”, unpublished paper, Washington: International Monetary Fund.

    Google Scholar 

  • 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 

  • Artis, Michael J., R. C. Bladin-Hovell, and W. Zhang (1992), “A European Money Demand Function”, Working paper, University of Manchester.

  • 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 

  • 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.

  • 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 

  • 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 

  • 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 

  • 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 

  • 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 

  • 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 

  • 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 

  • Boughton, J. M. (1979) “The Demand for Money in Major OECD Countries”,OECD Economic Outlook: Occasional Studies, 35–57.

  • Boughton, J. M. (1981) “Recent Instability of the Demand for Money: An International Perspective”,Southern Economic Journal 47, 579–597.

    Google Scholar 

  • Boughton, J. M. (1991) “Long-Run Money Demand in Large Industrial Countries”,Staff Papers 38, Washington: International Monetary Fund, pp. 1–32.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • 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 

  • Cambiaso, J. E. (1978)La Demanda de Dinero en América Latina. Mexico City: Centro de Estudios Monetarios Latinoamericanos.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • 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 

  • 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 

  • 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 

  • 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 

  • Darrat, A. F. (1986) “Demand for Money in Some Major OPEC Members: Regression Estimates and Stability Results,”Applied Economics 18, 127–142.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • Dolado, J. J., T. Jenkinson, and S. Sosyilla-Rivero (1990) “Cointegration and Unit Roots,”Journal of Economic Surveys 4 (3), 249–273.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • 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 

  • Faig, M. (1989) “Seasonal Fluctuations and the Demand for Money,”Quarterly Journal of Economics.

  • Fair, R. C. (1987) “International Evidence on the Demand for Money,”Review of Economics and Statistics 69, 437–480.

    Google Scholar 

  • 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 

  • 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 

  • 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.

  • Friedman, M. and A. J. Schwartz (1991) “Alternative Approaches to Analyzing Economic Data,”The American Economic Review 81(1), 39–49.

    Google Scholar 

  • Fry, M. J. (1978) “The Permanent Income Hypothesis in Underdeveloped Economies: Additional Evidence,”Journal of Development Economics, 5, 399–402.

    Google Scholar 

  • Gandolfi, A. E. and J. R. Lothian (1983) “International Price Behavior and the Demand for Money,”Economic Inquiry 21(3), 295–311.

    Google Scholar 

  • Goldfeld, S. (1973) “The Demand for Money Revisited,”Brookings Papers on Economic Activity (3), 577–646.

    Google Scholar 

  • Goldfeld, S. (1976) “The Case of the Missing Money,”Brookings Papers on Economic Activity (1), 683–739.

    Google Scholar 

  • 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 

  • Graves, P. E. (1978) “New Evidence on Income and the Velocity of Money,”Economic Inquiry 16, 53–68.

    Google Scholar 

  • 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 

  • Hacche, G. (1974) “The Demand for Money in the United Kingdom: Experience Since 1971,”Bank of England Quarterly Bulletin 14 284–305.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • 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 

  • 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 

  • Hoeller, P. and P. Poret (1991) “P-star as an Indicator of Inflationary Pressure,”OECD Economic Studies 17, 7–29.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • Johansen, S. (1988) “Statistical Analysis of Cointegration Vectors,”Journal of Economic Dynamics and Control 12, 231–254.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • Kenny, L. W. (1991) “Cross-Country Estimates of the Demand for Money and its Components,”Economic Inquiry 29, 696–705.

    Google Scholar 

  • 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 

  • Khan, M. S. (1975) “The Monetary Dynamics of Hyperinflation: A Note,”Journal of Monetary Economics 1(3), 355–362.

    Google Scholar 

  • Khan, M. S. (1977) “The Variability of Expectations in Hyperinflations,”Journal of Political Economy 85(4), 817–827.

    Google Scholar 

  • 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 

  • Khan, M. S. (1980) “Monetary Shocks, and the Dynamics of Inflation,”Staff Papers 27(2) Washington: International Monetary, Fund, 250–284.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • Kumah, E. O. (1989) “Monetary Concepts and Definitions,” IMF Working Paper 89/92, Washington: International Monetary Fund.

    Google Scholar 

  • Laidler, D. E. W. (1985)The Demand for Money: Theories and Evidence, 3rd ed. New York: Dunn-Donnelley (2nd ed., 1977).

    Google Scholar 

  • Latané, H. (1954) “An Empirical Test of the Income Velocity of Money and Interest Rates,”Southern Economic Journal 21, 84–86.

    Google Scholar 

  • Latané, H. (1963) “An Inter-Country Comparison of Interest Rates and Income Velocity,”Southern Economic Journal 30, 75–77.

    Google Scholar 

  • 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 

  • 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 

  • McCracken, P. (Chairman) (1977)Towards Full Employment and Price Stability. Report to the OECD by a Group of Independent Experts, Paris: OECD.

    Google Scholar 

  • Melitz J. and H. Correa (1970) “International Differences in Income Velocity,”The Review of Economics and Statistics 52(1), 12–17.

    Google Scholar 

  • Milbourne, R. (1988) “Disequilibrium Buffer Stock Models: A Survey,”Journal of Economic Surveys 2(3), 187–208.

    Google Scholar 

  • 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 

  • 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 

  • 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 

  • Ramirez-Rojas, C. L. (1985) “Currency Substitution in Argentina, Mexico, and Uruguay,”Staff Papers 32(4), Washington: International Monetary Fund, 629–667.

    Google Scholar 

  • 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 

  • Siklos, P. L. (1992) “Income Velocity and Institutional Change: Some New Time Series Evidence, 1870–1986,” forthcoming inJournal of Money, Credit and Banking.

  • Simmons, R. (1991) “An Error Correction Approach to Demand for Money in Five African Developing Countries,”Salford Papers in Economics, University of Salford.

  • 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.

  • 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 

  • Suzuki, Y. (1983) “Interest Rate Decontrol, Financial Innovation and the Effectiveness of Monetary Policy,” Bank of Japan,Monetary and Economic Studies.

  • 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 

  • 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 

  • 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.

  • 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 

  • 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 

Download references

Author information

Authors and Affiliations

  1. International Monetary Fund, Washington, D.C., USA

    James M. Boughton

Authors
  1. James M. Boughton
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Boughton, J.M. International comparisons of money demand. Open Econ Rev 3, 323–343 (1992). https://doi.org/10.1007/BF01886156

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF01886156

Key words

Search

Navigation