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A Nonlinear Specification of Demand for Narrow Money in Colombia

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Author Info
Luis Eduardo Arango ()
Andrés González

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Abstract

A nonlinear smooth transition regression(STR) model of the demand for narrow money in Colombia is specified using monthly data for cash, prices, the scale variable (industrial GDP), the interest rate and the rate of depreciation, within the single equation framework allowed by the data. In comparison with linear error correction model, the nonlinear specification is highly superior according to the statistics. The dynamics described by this model matches both the magnitudes and the behaviour of the aggregate demand for narrow money in Colombia during the sample period (1980.5-1998.11).

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 135.

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Handle: RePEc:bdr:borrec:135

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Related research
Keywords: error correction demand for money target-bounds buffer stocks nonlinearity smooth transition regression.

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Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

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  1. Martha Misas & Hugo Oliveros, . "Cointegración, exogeneidad y Crítica de Lucas: Funciones de Demanda de Dinero en Colombia: Un ejercicio más," Borradores de Economia 075, Banco de la Republica de Colombia. [Downloadable!]
  2. Carr, Jack & Darby, Michael R., 1981. "The role of money supply shocks in the short-run demand for money," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 183-199. [Downloadable!] (restricted)
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  3. Hendry, David F. & Ericsson, Neil R., 1991. "Modeling the demand for narrow money in the United Kingdom and the United States," European Economic Review, Elsevier, vol. 35(4), pages 833-881, May. [Downloadable!] (restricted)
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  4. Andreas Beyer, 1998. "Modelling money demand in Germany," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 57-76. [Downloadable!]
  5. Akerlof, George A & Milbourne, Ross D, 1980. "The Short Run Demand for Money," Economic Journal, Royal Economic Society, vol. 90(363), pages 885-900, December. [Downloadable!] (restricted)
  6. Krugman, Paul R, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 669-82, August. [Downloadable!] (restricted)
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  7. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September. [Downloadable!] (restricted)
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  8. Lutkepohl, Helmut & Terasvirta, Timo & Wolters, Jurgen, 1999. "Investigating Stability and Linearity of a German M1 Money Demand Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 511-25, Sept.-Oct. [Downloadable!]
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  9. Jansen, Eilev S & Terasvirta, Timo, 1996. "Testing Parameter Constancy and Super Exogeneity in Econometric Equations," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 735-63, November.
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  10. Carr, Jack & Darby, Michael R. & Thornton, Daniel L., 1985. "Monetary anticipations and the demand for money: Reply to MacKinnon and Milbourne," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 251-257, September. [Downloadable!] (restricted)
  11. Akerlof, George A, 1973. "The Demand for Money: A General-Equilibirum Inventory-Theoretic Approach," Review of Economic Studies, Blackwell Publishing, vol. 40(1), pages 115-30, January. [Downloadable!] (restricted)
  12. Laidler, David, 1997. "Notes on the Microfoundations of Monetary Economics," Economic Journal, Royal Economic Society, vol. 107(443), pages 1213-23, July. [Downloadable!] (restricted)
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  13. Laidler, David, 1984. "The 'Buffer Stock' Notion in Monetary Economics," Economic Journal, Royal Economic Society, vol. 94(376a), pages 17-34, Supplemen. [Downloadable!] (restricted)
  14. Akerlof, George A, 1979. "Irving Fisher on His Head: The Consequences of Constant Threshold-Target Monitoring of Money Holdings," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 169-87, May. [Downloadable!] (restricted)
  15. Hendry, David F & Ericsson, Neil R, 1991. "An Econometric Analysis of U.K. Money Demand in 'Monetary Trends in the United States and the United Kingdom' by Milton Friedman and Anna Schwartz," American Economic Review, American Economic Association, vol. 81(1), pages 8-38, March. [Downloadable!] (restricted)
  16. Milbourne, Ross, 1983. "Optimal Money Holding under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 685-98, October. [Downloadable!] (restricted)
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