Post by Sapphire Capital on Dec 11, 2008 0:59:19 GMT 4
Nonlinearities in the Dynamics of the Euro Area Demand for M1
Alessandro Calza
European Central Bank (ECB)
Andrea Zaghini
Bank of Italy
October 17, 2008
Bank of Italy Temi di Discussione (Working Paper) No. 690
Abstract:
The paper finds evidence of non-linearities in the dynamics of the euro-area demand for the narrow aggregate M1. A long-run money demand relationship is first estimated over a sample period covering the last three decades. While the parameters of the relationship are jointly stable, there are indications of non-linearity in the residuals of the error-correction model. This non-linearity is explicitly modelled using a fairly general Markov switching error-correction model with satisfactory results. The empirical findings of the paper are consistent with theoretical predictions of non-linearities in the dynamics of adjustment to equilibrium stemming from "buffer stock" and "target-threshold" models and with analogous empirical evidence for European countries and the US.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1290546_code606534.pdf?abstractid=1290546&mirid=3
Alessandro Calza
European Central Bank (ECB)
Andrea Zaghini
Bank of Italy
October 17, 2008
Bank of Italy Temi di Discussione (Working Paper) No. 690
Abstract:
The paper finds evidence of non-linearities in the dynamics of the euro-area demand for the narrow aggregate M1. A long-run money demand relationship is first estimated over a sample period covering the last three decades. While the parameters of the relationship are jointly stable, there are indications of non-linearity in the residuals of the error-correction model. This non-linearity is explicitly modelled using a fairly general Markov switching error-correction model with satisfactory results. The empirical findings of the paper are consistent with theoretical predictions of non-linearities in the dynamics of adjustment to equilibrium stemming from "buffer stock" and "target-threshold" models and with analogous empirical evidence for European countries and the US.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1290546_code606534.pdf?abstractid=1290546&mirid=3