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Evidence on nonlinear error correction in money demand: the case of Taiwan

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  • Cliff Huang
  • Chien-Fu Jeff Lin
  • Jen-Chi Cheng
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    Abstract

    This paper proposes a nonlinear error-correction model based upon smooth transition regression methodology. The model is specified such that the short-run adjustment toward long-run equilibrium is nonlinear and that the error correction is a smooth function of long-run deviation. Empirical results obtained from estimating M2 money demand in Taiwan support the hypothesis of a nonlinear error-correction process and provide better interpretation of change in the demand for money.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 33 (2001)
    Issue (Month): 13 ()
    Pages: 1727-1736

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    Handle: RePEc:taf:applec:v:33:y:2001:i:13:p:1727-1736

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    Cited by:
    1. Daiki Maki & Shin-ichi Kitasaka, 2006. "The equilibrium relationship among money, income, prices, and interest rates: evidence from a threshold cointegration test," Applied Economics, Taylor & Francis Journals, vol. 38(13), pages 1585-1592.
    2. Lee, Chien-Chiang & Chen, Pei-Fen & Chang, Chun-Ping, 2007. "Testing linearity in a cointegrating STR model for the money demand function: International evidence from G-7 countries," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 76(4), pages 293-302.
    3. Tang, Tuck Cheong, 2004. "Demand for broad money and expenditure components in Japan: an empirical study," Japan and the World Economy, Elsevier, vol. 16(4), pages 487-502, December.
    4. Amir Kia, 2006. "Economic policies and demand for money: evidence from Canada," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1389-1407.
    5. Greene, Clinton A., 2010. "Smooth-adjustment econometrics and inventory-theoretic money management," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1031-1047, June.

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