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The U.K. demand for money function is estimated by a generalized functional form obtained from utilizing the Box and Cox family of power transformations. The results from this analysis are compared with those obtained from estimating conventional functional forms. It is found that the demand for narrow money is adequately explained by a set of conventional independent variables regardless of which functional form is employed. However, the demand for broad money relationship is found to suffer from an inherent instability which is only partly overcome by generalizing the functional form. |
