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Modelling the Demand for M3 in the unified Germany

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Author Info

  • Wolters, Jürgen

    (Department of Statistics and Econometrics)

  • Teräsvirta, Timo

    ()
    (Department of Economic Statistics)

  • Lütkepohl, Helmut

    (Department of Statistics and Econometrics)

Abstract

An error correction model for the demand for real M3 money is constructed for the period 1976-1994 with real GNP, the GNP deflator as well as a short-term and a long-term interest rate as explanatory variables. Quarterly, seasonally unadjusted data are used in estimating the model. It is found that there is a clear structural break due to the German unification in 1990. On the other hand, once this structural break is accounted for, a stable relation is found which passes a series of misspecification tests. In particular, a number of recent tests of parameter constancy and linearity are applied. Our specification is at variance with findings reported by some other researchers, notably the Deutsche Bundesbank.

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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 113.

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Length: 19 pages
Date of creation: Apr 1996
Date of revision:
Publication status: Published in Review of Economics and Statistics , 1998, pages 399-409.
Handle: RePEc:hhs:hastef:0113

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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
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Web page: http://www.hhs.se/
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Keywords: Econometric modelling; nonlinearity; parameter constancy; smooth transition regression; structural break;

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