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Investigating Stability and Linearity of a German M1 Money Demand Function

Author

Listed:
  • Lütkepohl, Helmut
  • Teräsvirta, Timo

    (Dept. of Economic Statistics, Stockholm School of Economics)

  • Wolters, Jürgen

Abstract

Starting from a linear error correction model the stability and linearity of a German M1 moneyt demand function are investigated, applying smooth transition regression techniques. Using seasonally unadjusted data from 1961 (1) to 1990 (2) it is found that the money demand equation is both linear and stable. After extending the sampling period until 1994 (2) a clear structural instability due to the mnonetary unification 1 July 1990 is found and subsequently modelled.

Suggested Citation

  • Lütkepohl, Helmut & Teräsvirta, Timo & Wolters, Jürgen, 1995. "Investigating Stability and Linearity of a German M1 Money Demand Function," SSE/EFI Working Paper Series in Economics and Finance 64, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0064
    as

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    Keywords

    Error correction; German monetary unification; Nonlinearity; Smooth transition regression; Structural Change;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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