Use the data from the previous exercise and also download the three-month T Bill rate (CANSIM series V122531). Run a regression of real money balances on a constant, real GDP, and the nominal interest rate.
a. Comment on the fit of the regression.
b. What is the estimated income elasticity of the demand for real money balances? What is the estimated interest rate elasticity?
c. Are your estimates in (b) statistically significant?
d. Is your evidence consistent with the Baumol-Tobin model or with the quantity theory of money?
e. Is the money demand relationship stable?
