Monetary and Economic Studies Vol.8, No.2 / September 1990

The M2 Demand in Japan: Shifted and Unstable?

Tomoo Yoshida, 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.

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 1990 Bank of Japan All Rights Reserved.

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