NONLINEAR ERROR CORRECTION: THE CASE OF MONEY DEMAND IN THE UNITED KINGDOM (18782000)

Álvaro Escribano

104 citations0/0 files storedMacroeconomic Dynamics

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

Abstract

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.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1992Testing the null hypothesis of stationarity against the alternative of a unit root 1995Journal of the American Statistical Association 1995Likelihood-Based Inference in Cointegrated Vector Autoregressive Models 1990Statistical Inference in Instrumental Variables Regression with I(1) Processes 1987Time Series Regression with a Unit Root 1993Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data 1991Long-Term Memory in Stock Market Prices

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