A Nonlinear Specification of Demand for Narrow Money in Colombia
La serie Borradores de Economía es una publicación de la Subgerencia de Estudios Económicos del Banco de la República. Los trabajos son de carácter provisional, las opiniones y posibles errores son responsabilidad exclusiva del autor y sus contenidos no comprometen al Banco de la República ni a su Junta Directiva.
A nonlinear smooth transition regression (STR) model of the demand for narrow money in Colombia is specified using monthly data for cash, prices, the scale variable (industrial GDP), the interest rate and the rate of depreciation, within the single equation framework allowed by the data. In comparison with the linear error correction model, the nonlinear specification is highly superior according to the statistics. The dynamics described by this model matches both the magnitudes and the behavior of the aggregate demand for cash in Colombia during the sample period (1982.2-1998.11).
