Relative Prices in the UK Personal Sector Money Demand Function
Nonparametric demand analysis is used in order to establish admissible monetary aggregates and also to establish a potential role for relative prices in the money demand function. A conventional money demand specification is then contrasted with a money demand function which contains the relative prices of durables, nondurables, and services as additional regressors. Evidence from long-run cointegration analysis, short-run error correction models, and nonnested testing all confirm a role for relative prices in the U.K. personal sector's money demand function. Copyright 1996 by Royal Economic Society.