MONEY DEMAND FUNCTION IN JAPAN THROUGH COINTEGRATION ANALYSIS

We analyze a money demand function in long-run equilibrium relation that is dened by a cointegration property among money, gdp and interest rate. A wide sense of money " M2 + CD" consists of narrowly dened money " M1 " and widely dened one " quasi- money + CD". Previous researchers considered the relationship of ( M1 , gdp and call rate), ( M2 + CD, gdp and call rate) and ( M2 + CD, gdp and spread interest rate), where call rate is a representative short-term interest rate and where spread is a differ- ence between long-term interest rate and short-term one. It is obvious that M1 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 M2 + CD is repre- sented by GDP and two kinds of interest rates, i.e., short-term interest rate and spread one.