scholarly journals NONLINEAR ERROR CORRECTION: THE CASE OF MONEY DEMAND IN THE UNITED KINGDOM (1878–2000)

2004 ◽  
Vol 8 (1) ◽  
pp. 76-116 ◽  
Author(s):  
ALVARO ESCRIBANO
Keyword(s):  
Error Correction ◽  
Money Demand ◽  
Smoothing Splines ◽  
Single Equation ◽  
Parametric Models ◽  
Parameter Estimates ◽  
Nonlinear Error ◽  
Rational Polynomial ◽  
Long Run ◽  
The Stability

This paper explores single-equation nonlinear error correction (NEC) models with linear and nonlinear cointegrated variables. Within the class of semiparametric NEC models, we use smoothing splines. Within the class of parametric models, we discuss the interesting properties of cubic polynomial NEC models and we show how they can be used to identify unknown threshold points in asymmetric models and to check the stability properties of the long-run equilibrium. A new class of rational polynomial NEC models is also introduced. We found multiple long-run money demand equilibria. The stability observed in the money-demand parameter estimates during more than a century, 1878 to 2000, is remarkable.

scholarly journals Investigating the Stability of Money Demand in Ghana

2016 ◽  
Vol 64 (6) ◽  
pp. 2075-2079
Author(s):  
Dennis Nchor ◽  
Václav Adamec
Keyword(s):  
Error Correction ◽  
Money Demand ◽  
Structural Breaks ◽  
Correction Term ◽  
Demand For Money ◽  
Long Run ◽  
Short Run ◽  
The Interest Rate ◽  
The Stability ◽  
Cusum Tests

The study examined the demand for broad money and its stability in Ghana. Johansen’s cointegration approach reveals that the variables were non stationary and cointegrated, therefore, an error correction model, ECM was used to determine the factors that influence real money aggregate in Ghana from 1990 to 2014. The study estimated the results using two set of variables for real demand for money: M1 and M2+. This was done given the assumption that the demand for money was equal to the supply of money. The results show that, GDP affects the level of demand for money in the long run while the interest rate affects it in the short run. The error correction term in each of the cases shows that, 18 % of deviations in the real demand for money is corrected annually. The CUSUM tests of parameter stability showed that, the money demand function was stable over the period and the Chow test indicated that there were no structural breaks.

scholarly journals Persistent Liquidity Effects and Long-Run Money Demand

2014 ◽  
Vol 6 (2) ◽  
pp. 71-107 ◽  
Author(s):  
Fernando Alvarez ◽  
Francesco Lippi
Keyword(s):  
Interest Rates ◽  
Money Demand ◽  
Asset Markets ◽  
Propagation Mechanism ◽  
Monetary Model ◽  
Long Run ◽  
Short Run ◽  
The Stability ◽  
Two Parameters

We present a monetary model with segmented asset markets that implies a persistent fall in interest rates after a once-and-for-all increase in liquidity. The gradual propagation mechanism produced by our model is novel in the literature. We provide an analytical characterization of this mechanism, showing that the magnitude of the liquidity effect on impact, and its persistence, depend on the ratio of two parameters: the long-run interest rate elasticity of money demand and the intertemporal substitution elasticity. The model simultaneously explains the short-run “instability” of money demand estimates as well as the stability of long-run interest-elastic money demand. (JEL E13, E31, E41, E43, E52, E62)

scholarly journals The Impact of Financial Innovation on the Money Demand Function: An Empirical Verification in India

2020 ◽  
Vol 14 (1) ◽  
pp. 28-61 ◽  
Author(s):  
Masudul Hasan Adil ◽  
Neeraj Hatekar ◽  
Pravakar Sahoo
Keyword(s):  
Money Demand ◽  
Demand Function ◽  
Financial Innovation ◽  
Jel Classification ◽  
Parameter Estimates ◽  
Correlated Errors ◽  
Bounds Testing ◽  
Money Demand Function ◽  
Long Run ◽  
The Impact

Traditional money demand functions are often criticized for persistent over-prediction, implausible parameter estimates, highly serially correlated errors and unstable money demand. This study argues that some of these problems may have emerged for the lack of factoring financial innovation into the money demand function. This study estimates money demand for India during the post-reform period, from 1996:Q2 to 2016:Q3. The money demand function is estimated with the linear ARDL approach to cointegration developed by Pesaran, Shin, & Smith (2001), Bounds testing approaches to the analysis of level relationships, Journal of Applied Econometrics, 16(3), 289–326, after employing various proxies for financial innovation. In conclusion, the study finds that there is a stable long-run relationship among variables, such as real money balances, and the scale and opportunity cost variables. In a nutshell, the study assesses the relative importance of financial innovation variables in the money demand equation, and finds that financial innovation plays a very significant role in the money demand specification and its stability. JEL Classification: E41, E44, E42, E52, O16, O53

scholarly journals The stability of money demand in the long-run: Italy 1861–2011

Cliometrica ◽  
2016 ◽  
Vol 11 (2) ◽  
pp. 217-244 ◽  
Author(s):  
Vittorio Daniele ◽  
Pasquale Foresti ◽  
Oreste Napolitano
Keyword(s):  
Money Demand ◽  
Long Run ◽  
The Stability

scholarly journals Evidence on nonlinear error correction in money demand: the case of Taiwan

2001 ◽  
Vol 33 (13) ◽  
pp. 1727-1736 ◽  
Author(s):  
Cliff J. Huang ◽  
Chien-Fu Jeff Lin ◽  
Jen-Chi Cheng
Keyword(s):  
Error Correction ◽  
Money Demand ◽  
Nonlinear Error

scholarly journals REAL STOCK PRICES AND THE LONG-RUN MONEY DEMAND FUNCTION IN MALAYSIA: Evidence from Error Correction Model

2004 ◽  
Vol 6 (2) ◽  
pp. 293
Author(s):  
Naziruddin Abdullah ◽  
M. Shabri Abd. Majid
Keyword(s):  
Error Correction ◽  
Money Demand ◽  
Stock Prices ◽  
Positive Association ◽  
Error Correction Model ◽  
Money Market ◽  
Correction Model ◽  
Long Run ◽  
One Year

This study adopts the error correction model to empirically investigate the role of real stock prices in the long run-money demand in the Malaysian financial or money market for the period 1977: Q1-1997: Q2. Specifically, an attempt is made to check whether the real narrow money (M1/P) is cointegrated with the selected variables like industrial production index (IPI), one-year T-Bill rates (TB12), and real stock prices (RSP). If a cointegration between the variables, i.e., the dependent and independent variables, is found to be the case, it may imply that there exists a long-run co-movement among these variables in the Malaysian money market. From the empirical results it is found that the cointegration between money demand and real stock prices (RSP) is positive, implying that in the long run there is a positive association between real stock prices (RSP) and demand for real narrow money (M1/P). The policy implication that can be extracted from this study is that an increase in stock prices is likely to necessitate an expansionary monetary policy to prevent nominal income or inflation target from undershooting.

Testing for short-run threshold effects in a vector error-correction framework: a reappraisal of the stability of the US money demand

2015 ◽  
Vol 19 (3) ◽  
Author(s):  
Lenard Lieb ◽  
Bertrand Candelon
Keyword(s):  
Error Correction ◽  
Money Demand ◽  
Parameter Instability ◽  
Vector Error Correction ◽  
Testing Framework ◽  
Vector Error ◽  
The Us ◽  
Short Run ◽  
The Stability ◽  
The One

AbstractIn this paper we analyze the stability of the money demand system in the US. To this aim, we develop an estimation and testing framework for a threshold vector error-correction model (VECM), where short-run dynamics are regime dependent and are driven by an exogenous, stationary and ergodic threshold variable. We modify a traditional Wald-type test for linearity and derive its asymptotic distribution, which turns out to be non-standard, but similar to the one proposed by Andrews [Andrews, D. 1993. “Tests for Parameter Instability and Structural Change with Unknown Change Point.”

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