MONEY DEMAND FUNCTION IN JAPAN THROUGH COINTEGRATION ANALYSIS

We analyze a money demand function in long-run equilibrium relation that is defined by a cointegration property among money, gdp and interest rate. A wide sense of money "M-2 + CD consists of narrowly defined money "M-1" and widely defined one I quasi-money + CD Previous researchers considered the relationship of (M-1, gdp and call rate), (M-2 + CD, gdp and call rate) and (M-2 + CD, gdp and spread interest rate), where call rate is a representative short-term interest rate and where spread is a difference between long-term interest rate and short-term one. It is obvious that M-1 should be coupled with short-term interest rate and quasi-money + CD with spread interest rate. We showed that in cointegration analysis money demand function of M-2 + CD is represented by GDP and two kinds of interest rates, i.e., short-term interest rate and spread one.