The Demand for Money at the Zero Interest Rate Bound

Abstract

This paper undertakes both a narrow and wide replication of the estimation of a money demand function conducted by Ireland (American Economic Review, 2009). Using US data from 1980 to 2013, we show that the substantial increase in the money-income ratio during the period of near-zero interest rates is captured well by the log-log specification but not by the semi-log specification, contrary to the result obtained by Ireland (2009). Our estimate of the interest elasticity of money demand over the 1980-2013 period is about one-tenth that of Lucas (2000), who used a log-log specification. Finally, neither specification satisfactorily fits post-2015 US data.

Appendix

Online Appendix to The Demand for Money at the Zero Interest Rate Bound
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