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Financial Innovations And Demand For United States M1 And M2 Components

  • Economics


This paper investigates the effects OF THE Depository Institution Deregulation and Monetary Control Act of 1980 on the demand function of the United States M1, M2 and their components. The empirical tests are conducted using monthly data from January 1959 to June 1997 and the Johansen cointegration procedure. Results show that the stated monetary act of 1980 considerably affected the income and interest rate demand elasticities of both M1, M2 and their components. Results show a fall in the M1 interest rate elasticity indicating M1 as possibly a more effective monetary policy too after 1980. Results fail to show a stationary M2 demand function during the 1980s and 1990s after the 1980 monetary act. The rate of adjustment of the monetary variables towards the long-run equilibrium is also affected by the 1980 Act. [E41, E44]

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