Monetary dynamics : an application of co- integration and error – correction modeling

Abstract EN

Early studies that have been conducted on the estimation of money demand in the United States faced some dynamic problems such as, difficulties with the autocorrelation , the distinction between the long- run and short-run demands for money.

In seeking to construct an improved model, many economists took another approach of formulating an equation that integrates long-run properties with short-run dynamics, based on the recent merging of the theories of error-correction and Co-integration.

This paper will use the same approach that Miller (1991) had used in his paper, but the time period will be from (1959:i to 1999:i).

with new econometric methodology that marries long-run trend relationships between economic variables to a system of short-run dynamic adjustment equations.