Non‐linear error correction and the UK demand for broad money, 1878–1993

Timo Teräsvirta Y

87 citations0/0 files storedJournal of Applied Econometrics

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

Abstract In this paper we reconsider an error‐correction model of UK broad money demand by Ericsson, Hendry and Prestwich. Their model is non‐linear in both variables and parameters, and it can be viewed as an approximation to a smooth transition regression (STR) type specification. The corresponding STR model, when specified and estimated, fits the data better than the original model. Adopting a somewhat more general modelling approach leads to another STR model. This model variance dominates the other two, and the encompassing tests performed in this paper indicate that it is an improvement over the other two specifications. Copyright © 2001 John Wiley & Sons, Ltd.

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References

1992Testing for parameter instability in linear models 1971Econometric Analysis for National Economic Planning 1996Testing the adequacy of smooth transition autoregressive models 1989An Econometric Analysis of UK Money Demand In Monetary Trends in the United States and the United Kingdom by Milton Friedman and Anna J. Schwartz 1998The Demand for Broad Money in the United Kingdom, 1878–1993

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