Abstract
The paper by Ericsson, Hendry and Prestwich (EHP) is a report on an empirical analysis of the demand for money in the UK over the period 1878 to 1993. In spite of the very long period with a vast number of institutional changes and tremendous changes in the degree of openness of the economy, the authors are able to find an econometric model with underlying constant parameters. This somewhat surprising result is obtained through a redefinition of variables based on the opportunity cost of holding money, use of nonlinear formulations, and use of dummy variables. The period is divided into two subperiods: one running from 1878 to 1973 and the other from 1878 to 1993. It is shown that the differences between the parameter values in the two estimated models are negligible. The actual model has a nonlinear equilibrium correction term which seems quite interesting. The cointegrating relation for the period 1878 to 1973 is (EHP equation 17):
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