Mills, Terence C. (1979) Econometric modelling of the relationship between money, income and interest rates in the U.K. : 1963-1978. PhD thesis, University of Warwick.

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Abstract

This thesis investigates empirically the relationship
between money, income and interest rates in the U.K. over the
period 1963 to 1978. After developing univariate models of
the time series' proxying these theoretical variables, the
paradox existing between the conventional theoretical model, the
IS/LM framework, and the usual empirical practice of directly
estimating the demand for money function is investigated. It
is shown that the crucial issues are the exogeneity assumptions
placed on the IS/LM framework. As such assumptions cannot be
tested in a static framework, a dynamic analogue of the IS/LM
model is developed, along with appropriate methods for testing
exogeneity in dynamic multivariate systems. Empirical tests
show that the assumptions of the exogeneity of money and government
expenditure are invalid, but that the direct estimation of
demand for money functions is appropriate. This leads to an
investigation of the dynamic structure and functional form of
this function using recently developed techniques based on specification
search procedures.
A major conclusion of this study is that the IS/LM model is
an invalid framework for empirical research, and in particular
money cannot be regarded as being exogenously determined. Indeed,
there is no evidence of feedback from money to either real income
or prices, although both statistical and economic reasons are
advanced for the possibility that such feedback cannot be detected
by the techniques employed. Important short run dynamic effects
are found on the demand for money with respect to real income,
prices and interest rates. Furthermore, both the wage rate and
an own rate of interest variable are also important determinants
of money demand. The demand for narrow money function also
exhibits sensible long run behaviour and has an adequate
predictive performance but, unfortunately, the broad money function
has no long run properties and predicts unsatisfactorily.

Item Type:	Thesis or Dissertation (PhD)
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions
Library of Congress Subject Headings (LCSH):	Monetary policy -- Great Britain -- 20th century, Interest rates -- Great Britain -- 20th century, Income -- Great Britain -- 20th century
Official Date:	1979
Institution:	University of Warwick
Theses Department:	Department of Economics
Thesis Type:	PhD
Publication Status:	Unpublished
Supervisor(s)/Advisor:	Leech, D.
Extent:	173 leaves
Language:	eng
URI:	http://wrap.warwick.ac.uk/id/eprint/59531

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