The impact of financial innovations on the demand for money in the UK and Canada

The stability of the demand for money in the UK and Canada in view of innovations and other financial developments in the 1980s is the kernel of this analysis. The recently developed techniques of co-integration and the related error correction specification are employed throughout the study. It is suggested that if proper allowance for these financial developments is not accounted for in quantitative estimates of the Ml definition of the demand-for-money relationship in the two countries, parameter instability is inevitable. A secondary conclusion is that consumers' expenditure appears to be a better scale variable than the other variables utilized in the literature for this purpose.