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Money demand in the euro area, the US and the UK: Assessing the role of nonlinearity

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  • Jawadi, Fredj
  • Sousa, Ricardo M.

Abstract

This paper estimates money demand equations for the euro area, the US and the UK using a quantile regression framework and a smooth-transition regression. The quantile regression technique highlights that: (i) the income and the interest rate semi-elasticities are significantly different from the OLS estimates at the tails of the distribution of real money holdings; and (ii) the sensitivity of money demand with respect to inflation tends to be larger when real money holdings are extremely low. Finally, the smooth transition model provides two interesting findings. On the one hand, they capture reasonably well the nonlinear dynamics associated with the money demand function. On the other hand, they show that the elasticity of money demand with respect to inflation rate, interest rate, GDP and exchange rate varies not only in accordance with the regime considered, but also across the countries under consideration.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 507-515

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Handle: RePEc:eee:ecmode:v:32:y:2013:i:c:p:507-515

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Money demand; Smooth transition; Quantile regression;

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Citations

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Cited by:
  1. Jiranyakul, Komain & Opiela, Timothy, 2014. "An Empirical Test of Money Demand in Thailand from 1993 to 2012," MPRA Paper 54162, University Library of Munich, Germany.
  2. Gilles Dufrénot & Anwar Khayat, 2014. "Monetary Policy Switching in the Euro Area and Multiple Equilibria: An Empirical Investigation," AMSE Working Papers 1408, Aix-Marseille School of Economics, Marseille, France, revised Jan 2014.
  3. Stephen M. Miller & Luis F. Martins & Rangan Gupta, 2014. "A Time-Varying Approach of the US Welfare Cost of Inflation," Working papers 2014-11, University of Connecticut, Department of Economics.

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