Nonlinearities In The Dynamics Of The Euro Area Demand For M1
The paper finds evidence of non-linearities in the dynamics of the euro-area demand for the narrow aggregate M1. A long-run money demand relationship is first estimated over a sample period covering the last three decades. While the parameters of the relationship are jointly stable, there are indications of non-linearity in the residuals of the error-correction model. This non-linearity is explicitly modelled using a fairly general Markov switching error-correction model with satisfactory results. The empirical findings of the paper are consistent with theoretical predictions of non-linearities in the dynamics of adjustment to equilibrium stemming from "buffer stock" and "target-threshold" models and with analogous empirical evidence for European countries and the US.
(This abstract was borrowed from another version of this item.)
Volume (Year): 13 (2009)
Issue (Month): 01 (February)
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Web page: http://journals.cambridge.org/jid_MDY
References listed on IDEAS
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