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German unification and the demand for German M3

  • Stefan Gerlach

This paper estimates a demand equation for German M3 over the period 1971:1-1989:4, and studies its ability to predict all-German M3 during 1990:l-1992:4 and (a measure of) western German M3 during 1990:l-1994:l. Although the out-of-sample prediction errors appear serially correlated, the equation passes stability tests for the western German data until 1993:4, but rejects in 1994:1. The model fails stability tests for the all-German data, largely because the jump in the money stock at unification is larger than that in nominal GDP. A slight modification of the model estimated using data for the period up to 1990:4 predicts all- German M3 very well in the period 1991:l-1992:4.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 21.

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Length: 28 pages
Date of creation: Sep 1994
Date of revision:
Handle: RePEc:bis:biswps:21
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  1. Paul R. Masson & Marcel Cassard & Timothy D. Lane, 1994. "ERM Money Supplies and the Transition to EMU," IMF Working Papers 94/1, International Monetary Fund.
  2. Jeroen J.M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992. "The power of cointegration tests," International Finance Discussion Papers 431, Board of Governors of the Federal Reserve System (U.S.).
  3. Campbell, J.Y. & Perron, P., 1991. "Pitfalls and Opportunities: What Macroeconomics should know about unit roots," Papers 360, Princeton, Department of Economics - Econometric Research Program.
  4. Rose, Andrew K, 1985. "An Alternative Approach to the American Demand for Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 439-55, November.
  5. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, March.
  6. James M. Boughton, 1991. "Long-Run Money Demand in Large Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 1-32, March.
  7. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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