Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153026
Authors: 
Calza, Alessandro
Zaghini, Andrea
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper 592
Abstract: 
This paper investigates possible non-linearities in the dynamics of the euro area demand for the narrow aggregate M1. A long-run money demand relationship is firstly estimated over a sample period covering the last three decades. While the parameters of the relationship are jointly stable, there are indications of non-linearity in the residuals of the error-correction model. This non-linearity is explicitly modelled using a fairly general Markov switching error-correction model with satisfactory results. The empirical findings of the paper are consistent with theoretical predictions stemming from "buffer stock" and "target-threshold" models and with analogous empirical evidence for European countries and the US.
Subjects: 
cointegration
demand for money
euro area
non-linear error correction
JEL: 
E41
C22
Document Type: 
Working Paper

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