Further Results on the Long-Run Demand for Money in Korea: A Cointegration Analysis

Contrary to previous results by others, this paper provides the empirical evidence that M2, but not M1, monetary aggregate in Korea is meaningfully cointegrated with income, interest rate, and exchange rate, thus showing the existence of long-run demand function for a broad definition of money. Although such a finding supports the current practice of the Korean monetary authority in controling M2, a question still remains as to how broadly the monetary components should be aggregated for the purpose of monetary control. [E41]