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A smooth transition regression equation of the demand for UK M0

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  • A. J. Khadaroo

Abstract

The econometric analysis of UK M0 has, so far, been confined to linear models. Using quarterly data over the period 1970:4-1997:2 in a single-equation money demand system, this article shows that a linear error-correction equation of the demand for UK M0 contains significant non-linearity and parameter non-constancy of smooth transition regression (STR) type. A constant-parameter exponential STR (ESTR) equation is then estimated, suggesting that interest rate changes have been an important factor in explaining fluctuations in the demand for UK M0.

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  • A. J. Khadaroo, 2003. "A smooth transition regression equation of the demand for UK M0," Applied Economics Letters, Taylor & Francis Journals, vol. 10(12), pages 769-773.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:12:p:769-773
    DOI: 10.1080/1350485032000136351
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    References listed on IDEAS

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    1. Artis, M J & Lewis, M K, 1984. "How Unstable Is the Demand for Money in the United Kingdom?," Economica, London School of Economics and Political Science, vol. 51(204), pages 473-476, November.
    2. Lutkepohl, Helmut & Terasvirta, Timo & Wolters, Jurgen, 1999. "Investigating Stability and Linearity of a German M1 Money Demand Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 511-525, Sept.-Oct.
    3. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    5. Khadaroo, Ahmad Jameel, 2000. "Testing Restrictions on Cointegrating Vectors: A Comment," Journal of Macroeconomics, Elsevier, vol. 22(4), pages 695-705, October.
    6. 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.
    7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    8. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
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    Cited by:

    1. Srečko Devjak & Ludvik Bogataj, 2007. "Optimisation of short term commercial bank loans to corporates in terms of financing operating activities in Slovenia," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 15(4), pages 393-403, November.
    2. 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.
    3. Fredj Jawadi & Ricardo M. Sousa, 2013. "Modelling money demand: further evidence from an international comparison," Applied Economics Letters, Taylor & Francis Journals, vol. 20(11), pages 1052-1055, July.

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