The long-run interest elasticity of demand for money will be estimated as follows: SRE /δ = SRE /δ = b 2 X 2t /Y t /δ = b 2 X 2t / Y t. 1/δ. The long-run demand function for money can also be estimated by deflating the short-run demand function for money by δ or 1-b 3. and omitting Y t-1 term as shown below. Y t / δ = b 0. / δ + b 1. / δ X 1t + b 2. / δ X 2t. Real money demand functions.

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