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German unification and the demand for German M3

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  • Stefan Gerlach

Abstract

This paper estimates a demand equation for German M3 over the period 1971:1-1989:4, and studies its ability to predict all-German M3 during 1990:l-1992:4 and (a measure of) western German M3 during 1990:l-1994:l. Although the out-of-sample prediction errors appear serially correlated, the equation passes stability tests for the western German data until 1993:4, but rejects in 1994:1. The model fails stability tests for the all-German data, largely because the jump in the money stock at unification is larger than that in nominal GDP. A slight modification of the model estimated using data for the period up to 1990:4 predicts all- German M3 very well in the period 1991:l-1992:4.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 21.

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Length: 28 pages
Date of creation: Sep 1994
Date of revision:
Handle: RePEc:bis:biswps:21

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  1. James M. Boughton, 1991. "Long-Run Money Demand in Large Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 1-32, March.
  2. Paul R. Masson & Marcel Cassard & Timothy D. Lane, 1994. "ERM Money Supplies and the Transition to EMU," IMF Working Papers 94/1, International Monetary Fund.
  3. Jeroen J.M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992. "The power of cointegration tests," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 431, Board of Governors of the Federal Reserve System (U.S.).
  4. Campbell, John & Perron, Pierre, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," Scholarly Articles 3374863, Harvard University Department of Economics.
  5. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198288107, October.
  6. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
  7. Rose, Andrew K, 1985. "An Alternative Approach to the American Demand for Money," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 17(4), pages 439-55, November.
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Cited by:
  1. Wieland, Volker, 2000. "Monetary policy, parameter uncertainty and optimal learning," Journal of Monetary Economics, Elsevier, Elsevier, vol. 46(1), pages 199-228, August.
  2. Browne, F.X. & Fagan, G. & Henry, J., 1997. "Money Demand in EU Countries : A Survey," Papers, European Monetary Institute 7, European Monetary Institute.
  3. Svensson, Lars E O, 1999. "Monetary Policy Issues for the Eurosystem," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2197, C.E.P.R. Discussion Papers.
  4. Norbert Funke, 1997. "Predicting recessions: Some evidence for Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 133(1), pages 90-102, March.
  5. Ivo Arnold, 2003. "A Regional Analysis of German Money Demand Around Reunification with Implications for EMU," Empirica, Springer, Springer, vol. 30(1), pages 63-80, March.
  6. Renato Filosa, 1995. "Money demand stability and currency substitution in six European countries (1980-1992)," BIS Working Papers 30, Bank for International Settlements.

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