Japanese Demand for M1 and Demand Deposits: Cross-Sectional and Time-Series Evidence from Japan

We investigate the relationship between money, short-term interest rates, and scale variables. We use three monetary aggregates: Ml, demand deposits, and cash currency in circulation. Regional cross- sectional data yield stable estimates of the income elasticity of demand deposits that are positive and close to unity. We impose the estimated income elasticity obtained from cross-sectional data and estimate double- log interest rate elasticities of demand for Ml velocities and demand- deposit velocities using time-series data.