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(Solution Library) We want to run the simplest linear form for the money demand function, M/P = D(Yd, i), where M/P is real money balances, Yd is disposable

Question: We want to run the simplest linear form for the money demand function, M/P = D(Yd, i), where M/P is real money balances, Yd is disposable income, and i is a measure of the opportunity cost of money, the interest rate. A linear form of the equation is

M/P =  +  1 Y d +  2 i,

where we expect  1 > 0 and  2 < 0. Put the data in log form and regress real money balances on a constant, disposable income, and the interest rate and test the hypotheses.

What are the elasticities of money demand with respect to disposable income and the interest rate? Are the coefficients significantly different from zero? Do they have the right sign?

Price: $2.99
Solution: The downloadable solution consists of 2 pages
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