Monetary and Economic Studies Vol.22, No.3 / October 2004

Japanese Demand for M1 and Demand Deposits: Cross-Sectional and Time-Series Evidence from Japan

Hiroshi Fujiki, Kiyoshi Watanabe

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

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 © 2004 Bank of Japan All Rights Reserved.

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