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Investigating stability and linearity of a German M1 money demand function

✍ Scribed by Helmut Lütkepohl; Timo Teräsvirta; Jürgen Wolters

Publisher
John Wiley and Sons
Year
1999
Tongue
English
Weight
202 KB
Volume
14
Category
Article
ISSN
0883-7252

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✦ Synopsis

Starting from a linear error correction model (ECM) the stability and linearity of a German M1 money demand function are investigated, applying smooth transition regression techniques. Using seasonally unadjusted quarterly data from 1961(1) to 1990(2) it is found that the money demand equation considered is both linear and stable. After extending the sampling period until 1995(4) a clear structural instability due to the monetary uni®cation on 1 July 1990 is found and subsequently modelled. A non-linear speci®cation for the extended period is presented and discussed.

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