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December 1979

Evidence on the Temporal Stability of the Demand for Money Relationship in the United States

by R. W. Hafer and Scott E. Hein

This article provides a critical review of the existing evidence on the issue of the temporal stability of the money demand relationship. Various money demand specifications are examined in terms of their dynamic out-of-sample predictive ability over the post-1972 period and more formally through the use of the Brown-Durbin-Evans cusum-squares tests. The forecasting ability of these alternatives is compared using a common sample period, data base, and means of generating post-sample predictions.