Abstract
Our hypothesis is that financial innovation and depository-institution deregulation explain much of the seeming instability in the post-1973 money demand. Following a procedure similar to that employed by Hafer and Hein (1982) and Hafer (1982), we conclude that money demand experiences three periods of gradual intercept drift—two down and one up—rather than several one-time shifts. The gradual intercept drift is consistent with our hypothesis of financial innovation and depository-institution deregulation. Furthermore, after accounting for the gradual drift, the resulting full-sample regression are well-behaved.
Published Version
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