Modelling nonlinearities in European money demand : an application of threshold cointegration model

Download

index.pdf

Date

2013

Author

Korucu Gümüşoğlu, Nebile

Metadata

Show full item record

Item Usage Stats

230
views

130
downloads

The money demand function has been regarded as a fundamental building block in macroeconomic modelling, as it represents the link between the monetary policy and rest of the economy. The extensive literature on money demand function is concerned with the existence of a stable money demand function, which ensures adequate prediction of impact of a given change in money supply on other economic variables such as, inflation, interest rates, national income, private investment and other policy variables. This thesis employs both linear and nonlinear estimation methods to investigate the relationship between money demand, GDP, inflation and interest rates for the Euro Area over the period 1980-2010. The aim of this thesis is to compare the European money demand in linear and nonlinear framework. First a vector autoregression (VAR) model has been estimated. Then a threshold cointegration model has been employed and nonlinearity properties of the money demand relationship has been investigated. In contrast to the existing empirical literature, linear VEC model can find evidence of stability, however it has some conflicting results which can be explained by the nonlinearity of the model. Empirical results of MTAR type threshold cointegration specification verifies the nonlinearity in European money demand. The adjustment coefficient of lower regime suggests faster adjustment towards long run equilibrium compared to upper regime in nonlinear model. Moreover, the nonlinear model presents better fit to economic literature than linear model for European money demand.

Subject Keywords

Monetary policy, Money market, Capital market, Macroeconomics

URI

http://etd.lib.metu.edu.tr/upload/12615635/index.pdf
https://hdl.handle.net/11511/22291

Collections

Graduate School of Social Sciences, Thesis

Suggestions

OpenMETU
Core

The Assessment of macroeconomic variability and monetary transmission mechanisms in Turkey with VAR esrimates Baştan, Emine Meltem; Gaygısız Lajunen, Esma; Department of Economics (2012) This thesis investigates the nature of macroeconomic changes by focussing on the monetary policy changes in Turkey between 1990Q1-2011Q4 and assesses the variability of the economy via impulse response functions obtained from VAR analyses. The period of the analyses is characterized with changes of the definitions of monetary aggregates in 2002 and 2007. In order to have consistent monetary series, the new and old series are constructed according to new and old definitions and then analyses are carried out ...
Analysis of the monetary stance of Turkey between 2011 and 2018 with a new monetary conditions index: the roles of government bond yields and the exchange rate Kaptan, Savaş; Gaygısız Lajunen, Esma; Department of Economics (2019) Measuring the monetary policy stance of central banks is a much-debated issue in the literature. The changing economic dynamics over the time and different structures of economies have made impossible to use only short term interest rates, monetary aggregates or money market rates for analyzing the monetary stance. Accordingly, comprehensive monetary conditions indexes have been discovered and some central banks have started to use them as an operational target. In line with these developments, the main aim...
Optimal monetary policy and the timing of asset trade in open economies Senay, Ozge; Sutherland, Alan (2007-05-01) This paper analyses the timing of asset trade and its implications for monetary policy and welfare in open economies. Optimal policy is shown to differ significantly depending on whether asset trade takes place before or after policy decisions are made.
Non-linear structure of the Turkish interest rate transmission mechanism Bozok, İhsan; Yıldırım Kasap, Dilem; Department of Economics (2012) This paper empirically analyses the interest rate transmission mechanism from money market rate to lending rate by utilizing the bank-level data in the distinction of cash, automobile, housing and corporate loans in Turkey. The main objective is to reveal the possible asymmetries of the adjustment process as well as the extent of the pass through. Empirical results indicate that mark-up value is the minimum for corporate rates on average, followed by housing, automobile and cash rates, respectively. Additio...
Pricing and hedging a participating forward contract Ünver, İbrahim Emre; Danışoğlu, Seza; Sezer, Ali Devin; Department of Financial Mathematics (2013) We use the Garman-Kohlhagen model to compute the hedge and price of a participating forward contract on the US dollar that is written by a Turkish Bank. The algorithm is computed using actual market data and a weekly updated hedge is computed. We note that despite a weekly update and many assumptions made on the volatility and the interest rates the model gives a very reasonable hedge.

Citation Formats

N. Korucu Gümüşoğlu, “ Modelling nonlinearities in European money demand : an application of threshold cointegration model ,” Ph.D. - Doctoral Program, Middle East Technical University, 2013.