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The MIUF model-based interest rate semi-elasticity in the low

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					    The MIUF model-based interest rate semi-elasticity in the low interest

                                  rate environment



                                    Kazuyuki Inagaki1

                     Kobe University Working Paper Series, No.210

                                      January, 2007

Abstract

        Using the money-in-the-utility-function (MIUF) model, this paper examines the

U.S. money demand in the low interest rate environment of the early 2000s. The MIUF

model-based interest rate semi-elasticity is a decreasing function of interest rates, and

therefore takes different values according to the level of interest rates. The cointegration

and parameter stability of the MIUF model-based money demand function is supported.

Bootstrap simulations indicate that the MIUF model-based interest rate semi-elasticity

is significant. However, it increases considerably in the early 2000s. Consequently, the

U.S. money demand during this period appears to be the most interest-elastic in the past

few decades.



JEL classification: E41; E52

Keywords: Interest rate semi-elasticity; MIUF model; Low interest rate environment;

Slope of LM curve; Stability of money demand function

1
    Corresponding author: Kazuyuki Inagaki
Postal address: Graduate School of Economics, Kobe University, Rokkodai, Nada-ku,
                 Kobe 657-8501, Japan
E-mail address: 027d252e@stu.kobe-u.ac.jp

				
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