Abstract: | In this paper we estimate a stable demand for money relationship for Italy using a long series of historical data. We extend previously available data sets to obtain a sample for the years 1861 to 1990 and use cointegration analysis and two-stage estimation procedures to obtain a dynamic model for M2 demand. By employing a small number of explanatory variables and a nonlinear error-correction model we find a stable demand for money relationship. Our model incorporates significant inflation and interest rate effects, in contrast to previous studies of this type. |