| Sumario: | The article focuses on the stability of the demand for money function. The issue of the stability of the demand for money is crucial for understanding of the underlying transmission mechanism of the monetary policy. In this regard it is not only necessary to specify the appropriate form of the money demand function, but also to investigate the stability of this function. The two issues are interconnected. A misspecified demand for money function may yield statistically significant estimated coefficients of the explanatory variables, but it is very likely to fail any reasonable test of stability. Hence, the knowledge gained from examining the stability of the money demand function simultaneously throws light on the appropriate specification of variables entering the money demand equation. The purpose of the paper is to examine the stability of the money demand function for the United States over the post war period by employing the varying parameter regression approach developed recently by researchers T.F. Cooley and E.C. Prescott. The approach uses the basic idea that the parameter vector in an econometric relationship may be subject to sequential variation over time because of problems of structural change, misspecification and problems of aggregation.
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