A stable US money demand function, 1874–1975

We apply recent econometric techniques to the demand for money in the United States over a period of some hundred years, using data previously analyzed by Friedman and Schwartz (1982). Our results parallel those of Hendry and Ericsson's (1991) UK study. We find evidence of a unique long-run money demand function and of a stable short-run demand function which passes a range of diagnostic tests and exhibits parameter constancy. Also, parameter non-constancy in an inverted equation where prices appear as the dependent variable is inconsistent with the hypothesis of exogenous money determining prices through the money demand function