The demand for the components of broad money: Error-correction and generalized asset adjustment systems

Abstract

The distinction between bank and non-bank deposits have been blurred over the last decade and this has led to changes in the demand for various types of monetary aggregates. Thus, money demand studies which focus only on one monetary aggregate like M3 (currency plus bank deposits) without allowing for the altered nature of asset substitutions may lead to wrong inferences about the cause of the growth of money. This paper is concerned with the interactions between the components of broad money (currency, bank and non-bank deposits) in the long and short run. The long-run asset demand equations are specified to encompass the transaction and portfolio motives for demanding money, while the shor..