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Working Paper

Results of a Study of the Stability of Cointegrating Relations Comprised of Broad Monetary Aggregates

We find strong evidence of a stable “money demand” relationship for MZM and M2M through the 1990s. Though the M2 relation breaks down somewhere around 1990, evidence has been accumulating that the disturbance is well characterized as a permanent upward shift in M2 velocity, which began around 1990 and was largely over by 1994. Taken together, our results support the hypothesis that households permanently reallocated a portion of their wealth from time deposits to mutual funds. Although this reallocation may have been induced by depository restructuring, we argue that the substitution could be explained by appropriately measured opportunity cost.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.


Suggested Citation

Carlson, John B., Dennis Hoffman, Benjamin Keen, and Robert Rasche. 1999. “Results of a Study of the Stability of Cointegrating Relations Comprised of Broad Monetary Aggregates.” Federal Reserve Bank of Cleveland, Working Paper No. 99-17. https://doi.org/10.26509/frbc-wp-199917