Nonstationary Stochastic Seasonality and the German M2 Money Demand Function
In this paper nonstationary stochastic seasonality is investigated to model the German M2 money demand function using quarterly data for the period from 1960 to 1996. Empirical evidence is found in favour of a stable long-run M2 money demand function relying on seasonally unadjusted data while it is not possible to establish a stable long-run relationship using seasonally adjusted times series. The seasonal error correction model exhibits satisfactory properties and fits the data quite well. However, it shows parameter nonconstancy, especially in the middle of the 1970s and at the beginning of the 1990's when major monetary regime changes took place.
Money demand function; Seasonal integration and cointegration; Seasonal error correction model