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Nonlinear error-correction and the UK demand for broad money, 1878-1993

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Author Info

  • Teräsvirta, Timo

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

  • Eliasson, Ann-Charlotte

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

Abstract

This paper reconsiders a nonlinear error-correction model of UK broad money demand by Ericsson, Hendry and Prestwich. Their model can be viewed as an approximation to a smooth transition regression (STR) type specification. The corresponding STR model, when estimated, turns out to encompass the previous model. Adopting a somewhat more general modelling approach leads to another STR model. This model variance dominates the other two but does not encompass them. Nevertheless, it fits better than the other models in the eventful 1970s and 1980s.

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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 265.

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Length: 27 pages
Date of creation: 07 Oct 1998
Date of revision: 30 Nov 1998
Publication status: Published in Journal of Applied Econometrics, 2001, pages 277-288.
Handle: RePEc:hhs:hastef:0265

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Keywords: Dynamic model; econometric model building; encompassing; parameter constancy; smooth transition regression.;

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References

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  1. Eitrheim, Øyvind & Teräsvirta, Timo, 1995. "Testing the Adequacy of Smooth Transition Autoregressive Models," Working Paper Series in Economics and Finance 56, Stockholm School of Economics.
  2. Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, vol. 62(2), pages 211-228, June.
  3. Mizon, Grayham E & Richard, Jean-Francois, 1986. "The Encompassing Principle and Its Application to Testing Non-nested Hypotheses," Econometrica, Econometric Society, vol. 54(3), pages 657-78, May.
  4. Pesaran, M. H. & Weeks, M., 1999. "Non-nested Hypothesis Testing: An Overview," Cambridge Working Papers in Economics 9918, Faculty of Economics, University of Cambridge.
  5. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
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Citations

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Cited by:
  1. Theodore Panagiotidis, 2003. "Market Efficiency and the Euro:The case of the Athens Stock Exchange," Economics and Finance Discussion Papers 03-08, Economics and Finance Section, School of Social Sciences, Brunel University.
  2. doğru, bülent, 2013. "Dynamic Analysis of Money Demand Function: Case of Turkey," MPRA Paper 48402, University Library of Munich, Germany.
  3. Jawadi, Fredj & Sousa, Ricardo M., 2013. "Money demand in the euro area, the US and the UK: Assessing the role of nonlinearity," Economic Modelling, Elsevier, vol. 32(C), pages 507-515.
  4. repec:lan:wpaper:2381 is not listed on IDEAS
  5. repec:lan:wpaper:2602 is not listed on IDEAS
  6. 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.
  7. repec:lan:wpaper:2460 is not listed on IDEAS
  8. repec:lan:wpaper:2379 is not listed on IDEAS
  9. Luis Eduardo Arango & Andrés González, . "A Nonlinear Specification of Demand for Narrow Money in Colombia," Borradores de Economia 135, Banco de la Republica de Colombia.
  10. A Duarte & J L Nicolini-Llosa & I Paya, 2007. "Estimating Argentina''s imports elasticities," Working Papers 583372, Lancaster University Management School, Economics Department.

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