Forty Years of Empirical Evidence of Cointegration and Nonlinear Equilibrium Correction in <scp>UK</scp> Money Demand Since the <scp>XIXth</scp> Century

ABSTRACT Since the seminal contributions of Friedman and Schwartz and of Hendry and Ericsson, instability in money demand has remained a central issue in the literature. This study broadens and generalizes the first evidence for the United Kingdom of stable long‐ and short‐run broad money demand extending back to the nineteenth century. Using nonlinear cointegration and nonlinear equilibrium‐correction methods, we estimate broad money demand over 1877–2023. Our results indicate stable dynamics alongside episodic structural changes linked to excess inflation, defined as inflation approximately 6.5 percentage points above the historical mean rate of 2.2% observed since 1877.