ANTICIPATED AND UNANTICIPATED VARIABLES IN THE DEMAND FOR Ml IN THE U.K.

This paper presents and estimates a model of the demand for money that explicitly embodies forward-looking behavior. Agents' money balances react differently to anticipated and unanticipated changes in income, prices, and interest rates. A multiperiod, rational expectations, quadratic costs of adjustment problem is solved using the discrete time calculus of variations to yield the authors' money demand equation. This estimating equation nests both partial adjustment and error correction alternatives. Empirical results obtained using U.K. data on M1 are encouraging. Copyright 1989 by Blackwell Publishers Ltd and The Victoria University of Manchester

[1]  K. Cuthbertson,et al.  Monetary Anticipations and the Demand for Money in the U. S.: Further Results , 1988 .

[2]  K. Cuthbertson.  Expectations, Learning and the Kalman Filter , 1988 .

[3]  K. Cuthbertson.  THE DEMAND FOR M 1: A FORWARD LOOKING BUFFER STOCK MODEL , 1988 .

[4]  D. Hendry.  The encompassing implications of feedback versus feedforward mechanisms in econometrics , 1988 .

[5]  Mark P. Taylor.  Financial Innovation, Inflation and the Stability of the Demand for Broad Money in the United Kingdom , 1987 .

[6]  On Long-run Solutions to Dynamic Econometric Equations under Rational Expectations [A Cautionary Note on the Interpretation of Long-run Equilibrium Solutions in Conventional Macro Models] , 1987 .

[7]  C. Granger,et al.  Co-integration and error correction: representation, estimation and testing , 1987 .

[8]  J. Davidson.  Disequilibrium Money: Some Further Results with a Monetary Model of the UK , 1987 .

[9]  K. Cuthbertson.  PRICE EXPECTATIONS AND LAGS IN THE DEMAND FOR MONEY , 1986 .

[10]  Mark P. Taylor,et al.  Monetary Anticipation and the Demand for Money in the U.K.: Testing Rationality in the Shock-Absorber Hypothesis , 1986 .

[11]  Gregor W. Smith,et al.  A Dynamic Baumol-Tobin Model of Money Demand , 1986 .

[12]  Christopher M Kelly,et al.  A Cautionary Note on the Interpretation of Long-run Equilibrium Solutions in Conventional Macro Models [Economic Modelling of the Aggregate Time Series Relationship between Consumers' Expenditure and Income in the United Kingdom] [Serial Correlation as a Convenient Simplification, Not a Nuisance] , 1985 .

[13]  A. Rose.  An Alternative Approach to the American Demand for Money , 1985 .

[14]  David F. Hendry,et al.  Monetary Economic Myth and Econometric Reality , 1985 .

[15]  V. Roley.  Money Demand Predictability , 1985 .

[16]  J. Kiviet.  Model selection test procedures in a single linear equation of a dynamic simultaneous system and their defects in small samples , 1985 .

[17]  M. Lewis,et al.  How Unstable is the Demand for Money in the United Kingdom , 1984 .

[18]  J. Grice,et al.  WEALTH AND THE DEMAND FOR £M3 IN THE UNITED KINGDOM, 1963–1978 * , 1984 .

[19]  Omitted variables in equations relating prices to money , 1984 .

[20]  R. Gordon.  The Short-Run Demand for Money: a Reconsideration , 1984 .

[21]  J. MacKinnon,et al.  Monetary Anticipations and the Demand for Money , 1984 .

[22]  Adrian Pagan,et al.  Econometric Issues in the Analysis of Regressions with Generated Regressors. , 1984 .

[23]  Charles Goodhart,et al.  Monetary Theory and Practice , 1984 .

[24]  D. Laidler.  The "Buffer Stock" Notion in Monetary Economics , 1984 .

[25]  D. Laidler,et al.  A Small Macro-Model of the Post-War United States , 1983 .

[26]  R. Milbourne.  Price Expectations and the Demand for Money: Resolution of a Paradox , 1983 .

[27]  M. T. Wasan,et al.  A Theoretical Derivation of the Functional Form of Short Run Money Holdings , 1983 .

[28]  C. Sims,et al.  NEARLY EFFICIENT ESTIMATION OF TIME SERIES MODELS WITH PREDETERMINED, BUT NOT EXOGENOUS, INSTRUMENTS , 1983 .

[29]  J. Judd,et al.  The Search for a Stable Money Demand Function , 1982 .

[30]  Stephen F. LeRoy,et al.  Identification and Estimation of Money Demand , 1981 .

[31]  The Short Run Demand for Money , 1980 .

[32]  M. Darby,et al.  The Role of Money Supply Shocks in the Short-Run Demand for Money , 1980 .

[33]  D. Laidler,et al.  An Empirical Macro Model of an Open Economy under Fixed Exchange Rates: The United Kingdom 1954-1970 , 1980 .

[34]  Benjamin M. Friedman,et al.  Optimal expectations and the extreme information assumptions of ‘rational expectations’ macromodels , 1979 .

[35]  David F. Hendry,et al.  Serial Correlation as a Convenient Simplification, not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England. , 1978 .

[36]  R. Barro.  Unanticipated Money, Output, and the Price Level in the United States , 1978, Journal of Political Economy.

[37]  David S. Salkever,et al.  The use of dummy variables to compute predictions, prediction errors, and confidence intervals , 1976 .

[38]  M. Lewis,et al.  THE DEMAND FOR MONEY IN THE UNITED KINGDOM: 1963–1973 , 1976 .

[39]  E. Feige,et al.  Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy? , 1976, Journal of Political Economy.

[40]  G. Maddala,et al.  Errors in variables and serially correlated disturbances in distributed lag models , 1973 .

[41]  A. Shapiro.  Inflation, Lags, and the Demand for Money , 1973 .

[42]  Stephen M. Goldfeld,et al.  The Demand for Money Revisited , 1973 .

[43]  J. Muth.  Optimal Properties of Exponentially Weighted Forecasts , 1960 .