Investigating Stability and Linearity of a German M1 Money Demand Function
Posted: 22 Apr 1998
Date Written: Undated
Starting from a linear error correction model the stability and linearity of a German M1 money 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 monetary unification 1 July 1990 is found and subsequently modelled.
JEL Classification: C22, C52, E41
Suggested Citation: Suggested Citation