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- Title
NONLINEARITIES IN THE DYNAMICS OF THE EURO AREA DEMAND FOR M1.
- Authors
Alessandro Calza; Andrea Zaghini
- Abstract
This paper finds evidence of nonlinearities 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 past three decades. Although the parameters of the relationship are jointly stable, there are indications of nonlinearity in the residuals of the error-correction model. This nonlinearity is explicitly modeled using a fairly general Markov switching error-correction model with satisfactory results. The empirical findings of the paper are consistent with theoretical predictions of nonlinearities 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 United States.
- Subjects
UNITED States; EUROPE; EUROZONE; DEMAND for money; ERROR-correcting codes; NONLINEAR statistical models; MARKOV processes
- Publication
Macroeconomic Dynamics, 2009, Vol 13, Issue 1, p1
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100508070405