The M2 Demand in Japan: Shifted and Unstable?
Tomoo Yoshida and Robert H. Rasche
This paper investigates the stability of M2 demand in Japan using the statistical technique recently developed by Johansen (1988) and Johansen and Juselius (1989). Long-run equilibrium money demand function is identified and estimated along with the fourvariable vector error correction model (VECM). The results strongly suggests that the function shifted upwards - while leaving the income elasticity unchanged - in mid-1985, when the interest rates on large time deposits were deregulated.
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