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Original Articles

A smooth transition regression equation of the demand for UK M0

Pages 769-773 | Published online: 04 Jun 2010
 

Abstract

The econometric analysis of UK M0 has, so far, been confined to linear models. Using quarterly data over the period 1970:4–1997:2 in a single-equation money demand system, this article shows that a linear error-correction equation of the demand for UK M0 contains significant non-linearity and parameter non-constancy of smooth transition regression (STR) type. A constant-parameter exponential STR (ESTR) equation is then estimated, suggesting that interest rate changes have been an important factor in explaining fluctuations in the demand for UK M0.

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