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Money demand in the euro area, the US and the UK: assessing the role of nonlinearity

Jawadi, Fredj and Sousa, Ricardo J. (2013) Money demand in the euro area, the US and the UK: assessing the role of nonlinearity. Economic Modelling, 32 (1). pp. 507-515. ISSN 0264-9993

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Identification Number: 10.1016/j.econmod.2013.02.009

Abstract

This paper estimates money demand equations for the euro area, the US and the UK using a quantile regression framework and a smooth-transition regression. The quantile regression technique highlights that: (i) the income and the interest rate semi-elasticities are significantly different from the OLS estimates at the tails of the distribution of real money holdings; and (ii) the sensitivity of money demand with respect to inflation tends to be larger when real money holdings are extremely low. Finally, the smooth transition model provides two interesting findings. On the one hand, they capture reasonably well the nonlinear dynamics associated with the money demand function. On the other hand, they show that the elasticity of money demand with respect to inflation rate, interest rate, GDP and exchange rate varies not only in accordance with the regime considered, but also across the countries under consideration.

Item Type: Article
Official URL: http://www.journals.elsevier.com/economic-modellin...
Additional Information: © 2013 Elsevier
Divisions: Financial Markets Group
Subjects: H Social Sciences > HB Economic Theory
J Political Science > JN Political institutions (Europe)
JEL classification: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money
G - Financial Economics > G0 - General
Sets: Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 09 May 2013 15:46
Last Modified: 20 Nov 2019 10:51
URI: http://eprints.lse.ac.uk/id/eprint/49824

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