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Modelling Structural Change in Money Demand Using a Fourier-Series Approximation

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  • Ralf Becker
  • Walter Enders
  • Stan Hurn

Abstract

The paper develops a simple method that can be used to test for a time-varying intercept and to approximate its form. The test is solidly grounded in asymptotic theory and has good small-sample properties. The methodology is based on the fact that a Fourier approximation can capture the variation in any absolutely integrable function of time. As such, it is possible to use successive applications of the test to "back-out" the form of the time-varying intercept. We illustrate the methodology using an extended example concerning the demand for money.

Suggested Citation

  • Ralf Becker & Walter Enders & Stan Hurn, 2001. "Modelling Structural Change in Money Demand Using a Fourier-Series Approximation," Research Paper Series 67, Quantitative Finance Research Centre, University of Technology, Sydney.
    • Handle: RePEc:uts:rpaper:67
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    File URL: http://www.qfrc.uts.edu.au/research/research_papers/rp67.pdf
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    References listed on IDEAS

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    6. Tan, Hui Boon & Ashley, Richard, 1999. "Detection And Modeling Of Regression Parameter Variation Across Frequencies," Macroeconomic Dynamics, Cambridge University Press, vol. 3(1), pages 69-83, March.
    7. Stephen M. Goldfeld, 1976. "The Case of the Missing Money," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 683-740.
    8. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    9. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
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    Cited by:

    1. Razvan Pascalau & Christian Thomann & Greg N. Gregoriou, 2011. "Unconditional Mean, Volatility, and the FOURIER-GARCH Representation," Palgrave Macmillan Books, in: Greg N. Gregoriou & Razvan Pascalau (ed.), Financial Econometrics Modeling: Derivatives Pricing, Hedge Funds and Term Structure Models, chapter 5, pages 90-106, Palgrave Macmillan.
    2. Garcés Díaz, Daniel Guillermo, 2008. "Efectos de los cambios de la política monetaria en las dinámicas del tipo de cambio, el dinero y los precios en México (1945-2000)," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(299), pages 683-713, julio-sep.
    3. Daniel Garces-Diaz, 2004. "How Does the Monetary Model of Exchange Rate Determination Look When It Really Works?," Econometric Society 2004 North American Winter Meetings 60, Econometric Society.

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    More about this item

    Keywords

    structural break; fourier approximations; money demand;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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