Modelling money demand in Germany

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Modelling money demand in Germany

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Andreas Beyer (Department of Economics, University of Southampton, Southampton SO17 1BJ, UK)

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Andreas Beyer

Abstract

In this paper an empirically stable money demand model for M3 in Germany is presented. The sample period 1975-94 includes German unification. It is shown that this development has not substantially destabilized money demand. Parameter stability is extensively tested and not rejected. Applying encompassing tests, this model encompasses two recent models but is not encompassed by them. Exogeneity of the explanatory variables is discussed and tested along the definitions given in Engle, Hendry and Richard (1983). There is evidence that inflation and long-term interest rates are super-exogenous with respect to the parameters of the demand for M3 model. This result and the empirical long-run money demand function presented in this paper may affect the applicability of the so called 'P-Star concept' for German M3. © 1998 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 13 (1998)
Issue (Month): 1 ()
Pages: 57-76
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Handle: RePEc:jae:japmet:v:13:y:1998:i:1:p:57-76

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- K.S.E.M. Hubrich & P.J.G. Vlaar, 2000. "Germany and the euro area: differences in the transmission process of monetary policy," WO Research Memoranda (discontinued) 613, Netherlands Central Bank, Research Department. [Downloadable!]
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