Chapter

Econometrics in Action

David F. Hendry

in Dynamic Econometrics

Published in print February 1995 | ISBN: 9780198283164
Published online November 2003 | e-ISBN: 9780191596384 | DOI: http://dx.doi.org/10.1093/0198283164.003.0016

Series: Advanced Texts in Econometrics

 Econometrics in Action

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The methods, approaches, and principles are applied to modelling the transactions demand for money in the UK over 1963–89. Financial innovations affect the opportunity cost of holding money, captured in a learning‐adjusted interest‐rate differential. The data are described by graphs to highlight the main features requiring modelling. A system is examined for cointegration, and potential long‐run weak exogeneity. A small monetary model is formulated, which sustains a single‐equation analysis of transactions demand. Recommencing from a general linear autoregressive‐distributed lag representation, a simplified congruent equation is developed.

Keywords: congruent equation; financial innovation; opportunity cost; small monetary system; transactions demand for money; United Kingdom; weak exogeneity

Chapter.  16321 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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