Is Long-Run Demand for Money Stable in India? – An Application of the Gregory-Hansen Model

: The paper is an attempt to analyze the behavior of money demand function in India using annual data for the period 1953-2008. Gregory and Hansen (1996) cointegration results show the presence of cointegration between demand for money, real GDP and nominal interest rate with structural break in the year 1965. The study also suggests downward shift in the demand for money by about 0.33% around the year 1965. The analysis puts forward that demand for money is stable except for the period 1975-1998.