Non-linear error correction and the UK demand for broad money, 1878-1993

Timo Teräsvirta and Ann-Charlotte Eliasson
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Ann-Charlotte Eliasson: Department of Economic Statistics, Stockholm School of Economics, Box 6501, SE-113 83 Stockholm Sweden, Postal: Department of Economic Statistics, Stockholm School of Economics, Box 6501, SE-113 83 Stockholm Sweden

Journal of Applied Econometrics, 2001, vol. 16, issue 3, 277-288

Abstract: In this paper we reconsider an error-correction model of UK broad money demand by Ericsson, Hendry and Prestwich. Their model is non-linear in both variables and parameters, and it can be viewed as an approximation to a smooth transition regression (STR) type specification. The corresponding STR model, when specified and estimated, fits the data better than the original model. Adopting a somewhat more general modelling approach leads to another STR model. This model variance dominates the other two, and the encompassing tests performed in this paper indicate that it is an improvement over the other two specifications. Copyright © 2001 John Wiley & Sons, Ltd.

Date: 2001
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