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| Volume 8, No. 3,
December
2009 |
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Financial Innovations and the
Interest Elasticity of Money Demand in the United Kingdom, 1963–2009 |
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| Mohammad
S. Hasan |
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Kent Business School, University of
Kent, U.K. |
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| Abstract |
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This paper
empirically examines the relationship between financial innovations
and interest elasticity of money demand in the UK. Contrary to most
research work in this area, the results indicate that financial
innovations and other deregulatory changes in financial market
conditions after the 1980s have raised the interest elasticity of
money demand, and this appears to support the Gurley-Shaw
hypothesis. The evidence calls into question the relative efficacy
of a monetary targeting approach in the conduct of monetary policy. |
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Key words:
interest elasticity; money demand; financial innovations;
Gurley-Shaw hypothesis; rolling regressions |
| JEL
classification:
C52; E41 |
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