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

Fredj Jawadi and Ricardo Sousa

Economic Modelling, 2013, vol. 32, issue C, 507-515

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.

Keywords: Money demand; Smooth transition; Quantile regression (search for similar items in EconPapers)
JEL-codes: C2 D12 E21 E44 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Working Paper: Money Demand in the euro area, the US and the UK:Assessing the Role of Nonlinearity (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:32:y:2013:i:c:p:507-515

DOI: 10.1016/j.econmod.2013.02.009

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