Cointegration, structural breaks and the demand for money in Bangladesh

Abstract

This article allows for endogenous structural breaks in the cointegration equation and investigates if there is a stable demand for money for Bangladesh. We have used the Gregory and Hansen framework and found that there was an intercept shift and a well-determined and stable demand for money in Bangladesh exists.

Acknowledgements

We thank a referee and Rup Singh of University of the south Pacific for helpful comments.

Notes

¹ We could have selected any relationship and data from any country to illustrate our technique. However, we have selected the demand for money in Bangladesh because relatively there are only a small number of empirical works on this topic.

² The estimated adjusted are all close to unity and the author did not report any measures to test for autocorrelation in the residuals.

³ Significance at 1% is indicated by **.

⁴ The bounds test used by Siddiki does not require pre-testing the variables for unit roots.

⁵ Readers of this journal may have noted that there have been some unsubstantiated claims on the existence of small sample critical values for the bounds test. Therefore, we wish to bring to the attention of those using the bounds test that Turner (2006) has recently computed sample size adjusted critical values for the bounds test.