Transactions demand for money, deregulation and stock exchanges

In this paper money demand is estimated for the period 1983/1-1986/12 for which a market interest rate is available. It will also be studied whether the rapid increase in the total value of trading on the Helsinki Stock Exchange has had any impact on the transactions demand for money. The results give only slight support for the significance of the stock exchange variable as a determinant of money demand. The estimation is carried out using both levels and difference specification. Cointegrating variables and error correction -models are also tested. The results show that money demand can validly be estimated without lagged dependent variable. Hence, it is legitimate to assume that money demand adjusts more or less immediately in which case estimation in levels specification gives satisfactory results.