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

  • Teräsvirta, Timo


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

  • Eliasson, Ann-Charlotte

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

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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Paper provided by Stockholm School of Economics in its series SSE/EFI 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
Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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  1. Eitrheim, Øyvind & Teräsvirta, Timo, 1995. "Testing the Adequacy of Smooth Transition Autoregressive Models," SSE/EFI Working Paper Series in Economics and Finance 56, Stockholm School of Economics.
  2. 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.
  3. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  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. 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.
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