We investigate the relationship between money, short-term interest rates, and scale variables. We use three monetary aggregates: M1, demand deposits, and cash currency in circulation. Regional cross-sectional data yield stable estimates of the income elasticity of demand deposits that are positive and close to unity. We impose the estimated income elasticity obtained from cross-sectional data and estimate double-log interest rate elasticities of demand for M1 velocities and demand-deposit velocities using time-series data.
Keywords: Zero interest rate policy; Demand for money
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