July 1989

An Econometric Analysis of UK Money Demand In Monetary Trends in the United States and the United Kingdom by Milton Friedman and Anna J. Schwartz

David F. Hendry and Neil R. Ericsson


This paper evaluates an empirical model of UK money demand developed by Friedman and Schwartz in Monetary Trends... .Testing reveals mis-specification and hence the potential for an improved model. Using recursive procedures on their annual data, we obtain a better-fitting, constant, dynamic error-correction (cointegration) model. Results on exogeneity and encompassing imply that our money-demand model is interpretable as a model of money but not of prices since its constancy holds only conditional on contemporaneous prices.

PDF: Full Paper

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Last Update: March 30, 2021