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Modeling The Demand For M3 In The Unified Germany

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  • Jürgen Wolters
  • Timo Teräsvirta
  • Helmut Lütkepohl

Abstract

An error correction model for the demand for real M3 money is constructed for the period of 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 resists a series of specification tests. These include a number of recent tests of parameter constancy and linearity. Our specification is at variance with findings reported by some other researchers, notably the Deutsche Bundesbank. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Jürgen Wolters & Timo Teräsvirta & Helmut Lütkepohl, 1998. "Modeling The Demand For M3 In The Unified Germany," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 399-409, August.
  • Handle: RePEc:tpr:restat:v:80:y:1998:i:3:p:399-409
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    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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