Modelling Long-run Money Demand: A Panel Data Analysis on Nine Developed Economies

In this article, we investigate the presence of a long-run money demand in a selected group of nine developed OECD countries (G7 plus Australia and Switzerland). Our estimations are based on panel DOLS and between-dimension group-mean panel DOLS introduced by Mark and Sul (2003) and Pedroni (2001), respectively. We employ income and wealth as alternative scale variables to model two money demand functions using quarterly data for the period 1982 to 2008. Our results highlight the role of total wealth in the determination of money demand with a positive elasticity. Moreover, a parameter stability analysis suggests that estimated money demand with the inclusion of wealth is more stable.