A Cointegration Analysis of the U.S. Money Supply Process

Abstract

The elements of the U.S. M1 money supply process are examined for cointegration and error correction for the subperiods of differing Federal Reserve operating procedures from 1971 through 1990. Cointegration among the money supply, the monetary base, and the market-deposit interest rate differential is observed from 1983:01 to 1990:06 during the borrowed reserves operating procedure period. Movements in the interest differential, which possibly affected the currency-deposit ratio component of the money multiplier, and in the money supply, maintained the long-run equilibrium relationship among the series.