Abstract #300493

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JSM 2002 Abstract #300493
Activity Number: 355
Type: Contributed
Date/Time: Wednesday, August 14, 2002 : 2:00 PM to 3:50 PM
Sponsor: Business & Economics Statistics Section*
Abstract - #300493
Title: Transformation and Stationarity of Economic Variables: A Case Study on the Demand for Money
Author(s): Hui Chang*+ and Yu Hsing
Affiliation(s): University of Tennessee and Southeastern Louisiana University
Address: Departemnt of Economics, UTK, Knoxville, Tennessee, 37996-0550, USA
Keywords: Box-Cox Transformation ; Cointegration ; Elasticity of Demand
Abstract:

A general functional form is used to estimate the demand for M2. Results disclose that all coefficients in the optimal form have correct signs and are significant. The log-linear form commonly used is rejected statistically. All variables in the optimal form were tested to be stationary. The equilibrium relationship for M2 is validated with an autoregressive distributed-lag model. It is found that interest-elasticity of money demand in absolute value increases as the interest rate rises, and the elasticity with respect to GDP decreases as GDP increases. Such findings imply that the effectiveness of monetary policy depends on the state of the economy.

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