This study examines the transactions demand for cash in several sectors of Canadian industry. In particular, the question of the existence of economies and diseconomies of scale in the holding of cash balances is investigated. In the estimation procedure, sales were used as an approximation of transactions. Average cash balances were regressed on average annual sales figures for fourteen industrial groups in the years 1957, 1958 and 1960. Log and ordinary linear formulations were used. Regression coefficients indicated that in the majority of cases, elasticities of cash with respect to sales were approximately unity, as the Meltzer model of the demand for cash predicts. In three out of the forty-two cases, elasticities were significantly (at the .05 level) less than unity, indicating that the Baumol-Tobin models might be relevant in some cases. In five cases, elasticities significantly greater than unity were found. / Business, Sauder School of / Graduate

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This thesis seeks to contribute to the theoretical and empirical debate surrounding five key issues in the demand for money. These issues are identified as: stability, functional form, causality, dynamics and competing theories. Each is examined through the application of current econometric methods to Canadian data. In addition to providing information about Canadian money demand, efforts are made to assess the practical nature of the econometric techniques employed. / Contributions include: an assessment of relative sensitivity of various stability tests; a discussion of stability of monetary aggregates wherein a demand shift in the current account component of narrow money in the mid-1970s is identified; empirical and theoretical analyses of the appropriateness of a semilogarithmic functional form; technical improvements in the study of causality for Canada; discussion and assessment of variable dynamics in the equilibrating adjustment process; and construction of a statistically-optimum and economically-rational price expectations series.

This dissertation starts by examining the evolution of the Canadian payments system from a historical perspective by reviewing the institutional evolution, as well as the development and adoption of some of the newest payment instruments. Two major trends in recent Canadian payment history are revealed, i.e., cash payments are being replaced by non-cash payments and paper-based payment instruments are being replaced by electronic payment instruments. / Next, we adopt a model proposed by Snellman et al. (2000) to conduct a Canadian study of the retail cash payment flows. The estimated results imply that the share of cash, as well as cheques, in overall retail payments in Canada has declined quite considerably. We then investigate the cash substitution process, as well as the electronification of payments in Canada using S-shaped growth curve models. Our results indicate that although the card payments will continue to further substitute for cash, cash will still remain the preferred medium of retail payments in Canada. However, approximately 80% of all payments are forecasted to be electronic in just 20 years. / This dissertation then extends the existing literature on the long-run money demand relationship in Canada by employing information on the payment technology development as an instrument variable to account for financial innovations that might have caused structural shifts in the money demand equation. The econometric methodology employed is cointegration and error-correction modelling. It is found that our measure of financial innovations removes most of the structural breaks in the money demand equation over the sample period. A unique and significant long-run money demand relationship is detected. The short-run dynamic specifications of the VECM system imply the weak exogeneity of output and interest rates.

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In this study, the possibility that money demand of one country might be affected by macroeconomic activities of other countries is investigated. We use the seemingly unrelated regression (SUR) technique, which takes into account all covariances between residuals of country-specific money demand equations. Efficiency of estimates using the SUR technique is enhanced because it uses information contained in the contemporaneous correlation of the error terms. The hypothesis of economic interdependence is tested. A proxy for foreign influence, deviation from interest rate parity (DIRP), is tested for significance in the money demand function.

Pang Po Hing. / Thesis (M.Phil.)--Chinese University of Hong Kong, 1996. / Includes bibliographical references (leaves 67-71). / ABSTRACT --- p.i / ACKNOWLEDGMENT --- p.ii / LIST OF TABLES --- p.v / LIST OF FIGURES --- p.vi / Chapter CHAPTER 1: --- INTRODUCTION --- p.1 / Chapter CHAPTER 2: --- LITERATURE REVIEW --- p.4 / Chapter 2.1 --- Theoretical Review --- p.4 / Chapter 2.1.1 --- Properties of a Target Variable --- p.4 / Chapter 2.1.2 --- Money View --- p.4 / Chapter 2.1.3 --- Credit View --- p.5 / Chapter 2.2 --- Empirical Review --- p.8 / Chapter 2.2.1 --- Money View --- p.8 / Chapter 2.2.2 --- Credit View --- p.10 / Chapter CHAPTER 3: --- METHODOLOGY --- p.14 / Chapter 3.1 --- Vector Autoregression (VAR) --- p.14 / Chapter 3.1.1 --- Estimation of the Reduced Form VAR Model --- p.14 / Chapter 3.1.2 --- The Parameters Restrictions --- p.17 / Chapter 3.1.3 --- The Wald Statistics --- p.23 / Chapter 3.1.4 --- Impulse Response Functions --- p.24 / Chapter 3.1.5 --- Variance Decompositions --- p.25 / Chapter 3.1.6 --- Structural Decomposition --- p.26 / Chapter 3.2 --- Data Diagnoses --- p.27 / Chapter 3.2.1 --- Stationarity of the Time Series --- p.27 / Chapter 3.2.1.1 --- Definition of Stationarity --- p.27 / Chapter 3.2.1.2 --- The Unit Root Tests --- p.27 / Chapter 3.2.1.2a --- The Augmented Dickey and Fuller Tests --- p.27 / Chapter 3.2.1.2b --- The Phillips and Perron Tests --- p.29 / Chapter 3.2.1.2c --- Lag Lengths for the Unit Root Tests --- p.30 / Chapter 3.2.2 --- Selecting the Order of the VAR Model --- p.31 / Chapter 3.2.1 --- Tests for the Model Stability --- p.31 / Chapter 3.3 --- Estimation Procedures --- p.34 / Chapter CHAPTER 4: --- EMPIRICAL RESULTS --- p.36 / Chapter 4.1 --- Results of the Data Diagnoses --- p.36 / Chapter 4.1.1 --- Results of the Unit Root Tests --- p.36 / Chapter 4.1.2 --- Lag Length of the VAR Model --- p.38 / Chapter 4.1.3 --- Results of the Likelihood Ratio Tests --- p.38 / Chapter 4.2 --- Estimation of the Reduced Form VAR Model --- p.39 / Chapter 4.2.1 --- Results of the Parameters Estimates --- p.39 / Chapter 4.2.2 --- The Wald Statistics --- p.43 / Chapter 4.2.3 --- Variance Decompositions --- p.47 / Chapter 4.2.4 --- Impulse Response Functions --- p.54 / Chapter CHAPTER 5: --- IMPLICATIONS AND CONCLUSIONS --- p.62 / REFERENCES --- p.67 / APPENDICES --- p.72