U.S. money demand instability A flexible least squares approach
AbstractThis study uses the Flexible Least Squares method for Time-Varying Linear Regression (FLS-TVLR) to investigate coefficient stability for the Goldfeld U.S. money demand model over the volatile period 1959:Q2 to 1985:Q3. The only constraint imposed on coefficient variation over time is a smoothness prior. Nevertheless, the time paths traced out by the FLS-TVLR coefficient estimates exhibit systematic idiosyncratic time variations as well as simultaneous shift movements in 1974 during the time of the first oil price shock. Moreover, the FLS-TVLR estimates also indicate that the "unit root" nonstationarity problem reported by OLS money demand studies disappears if the coefficients are allowed to exhibit even small amounts of time variation. Annotated pointers to related work can be accessed here: http://www.econ.iastate.edu/tesfatsi/flshome.htm
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 14 (1990)
Issue (Month): 1 (February)
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Web page: http://www.elsevier.com/locate/jedc
Other versions of this item:
- Tesfatsion, L. & Veitch, J., 1988. "U.S. Money Demand Instability: A Flexible Least Squares Approach," Papers m8809, Southern California - Department of Economics.
- Tesfatsion, Leigh S. & Veitch, J., 1990. "U.S. Money Demand Instability: A Flexible Least Squares Approach," Staff General Research Papers 11193, Iowa State University, Department of Economics.
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
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