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Investigating Stability and Linearity of a German M1 Money Demand Function

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Author Info

  • Lütkepohl, Helmut
  • Teräsvirta, Timo

    ()
    (Dept. of Economic Statistics, Stockholm School of Economics)

  • Wolters, Jürgen

Abstract

Starting from a linear error correction model the stability and linearity of a German M1 moneyt demand function are investigated, applying smooth transition regression techniques. Using seasonally unadjusted data from 1961 (1) to 1990 (2) it is found that the money demand equation is both linear and stable. After extending the sampling period until 1994 (2) a clear structural instability due to the mnonetary unification 1 July 1990 is found and subsequently modelled.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 64.

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Length: 22 pages
Date of creation: Aug 1995
Date of revision:
Publication status: Published in Journal of Applied Econometrics, 1999, pages 511-525.
Handle: RePEc:hhs:hastef:0064

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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
Fax: +46-(0)8-31 01 57
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Web page: http://www.hhs.se/
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Related research

Keywords: Error correction; German monetary unification; Nonlinearity; Smooth transition regression; Structural Change;

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