Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 64:
Investigating Stability and Linearity of a German M1 Money Demand Function

Helmut Lütkepohl, Timo Teräsvirta () and Jürgen Wolters

Abstract: Starting from a linear error correction model the stability and linearity of a German M1 moneyt demand function are investigated, applying smooth transition regression techniques. Using seasonally unadjusted data from 1961 (1) to 1990 (2) it is found that the money demand equation is both linear and stable. After extending the sampling period until 1994 (2) a clear structural instability due to the mnonetary unification 1 July 1990 is found and subsequently modelled.

Keywords: Error correction; German monetary unification; Nonlinearity; Smooth transition regression; Structural Change; (follow links to similar papers)

JEL-Codes: C22; C52; E41; (follow links to similar papers)

22 pages, August 1995

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This paper is published as:
Lütkepohl, Helmut, Timo Teräsvirta and Jürgen Wolters, (1999), 'Investigating Stability and Linearity of a German M1 Money Demand Function', Journal of Applied Econometrics, Vol. 14, pages 511-525

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