Analysing money demand relation for OECD countries using common factors

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This paper investigates the existence of a long-run money demand relation for a
panel data consisting of 13 OECD countries. The analysis is based on the most
recent data. The existence of a long-run money demand relation is tested with two new meta-analytic panel cointegrating rank tests of Örsal and Arsova (2017) which are robust to cross-sectional dependence. Cross-sectional dependency in the data generating process is modeled by unobserved common factors. The observed data is decomposed into idiosyncratic and common components, and these two components are analyzed separately to find out the driving forces of the long-run stationary relationship. The evidence shows that the long-run money demand relation is driven by the cross-unit cointegration. Finally, the long-run relation is estimated with the procedure of Bai, Kao, and Ng (2009) by taking the common factors into account.
ZeitschriftApplied Economics
Seiten (von - bis)6003 - 6013
Anzahl der Seiten11
PublikationsstatusErschienen - 2017