Evidence on nonlinear error correction in money demand: the case of Taiwan

Cliff Huang, Chien-Fu Jeff Lin and Jen-Chi Cheng

Applied Economics, 2001, vol. 33, issue 13, 1727-1736

Abstract: This paper proposes a nonlinear error-correction model based upon smooth transition regression methodology. The model is specified such that the short-run adjustment toward long-run equilibrium is nonlinear and that the error correction is a smooth function of long-run deviation. Empirical results obtained from estimating M2 money demand in Taiwan support the hypothesis of a nonlinear error-correction process and provide better interpretation of change in the demand for money.

Date: 2001
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DOI: 10.1080/00036840010017631

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