Equilibrium Income and Interest Elasticities of the Demand for M1 in JapanRobert H. Rasche This study investigates the equilibrium relationship between real M1 balances, real GNP and short-term interest rates in Japan since 1955. Although each of these variables appears to be nonstationary, the evidence suggests that there exists a stable, stationary linear combination of the three variables over the entire sample period. The estimated coefficients of this vector suggest that the long-run income elasticity of real M1 is not significantly different from one, and the long-run interest elasticity is around 0.5. Views expressed in Monetary and Economic Studies are those
of the authors and do not necessarily reflect those of the Bank
of Japan or Institute for Monetary and Economic Studies. |
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