, Timo Teräsvirta
() and Helmut Lütkepohl
Jürgen Wolters: Department of Statistics and Econometrics, Postal: Freie Universität Berlin, D-14195 Berlin, Germany
Timo Teräsvirta: Department of Economic Statistics, Postal: Stockholm School of Economics, Box 6501, 113 83 Stockholm, Sweden
Helmut Lütkepohl: Department of Statistics and Econometrics, Postal: Humboldt-Universitat zu Berlin, D-10178 Berlin, Germany
Abstract: An error correction model for the demand for real M3 money is constructed for the period 1976-1994 with real GNP, the GNP deflator as well as a short-term and a long-term interest rate as explanatory variables. Quarterly, seasonally unadjusted data are used in estimating the model. It is found that there is a clear structural break due to the German unification in 1990. On the other hand, once this structural break is accounted for, a stable relation is found which passes a series of misspecification tests. In particular, a number of recent tests of parameter constancy and linearity are applied. Our specification is at variance with findings reported by some other researchers, notably the Deutsche Bundesbank.
19 pages, April 1996
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