The demand for money in Austria

In this paper, the demand for real money M1, M2, and M3 is estimated for Austria over the time period 1965–96. The modelling takes place within the framework of a small vector autoregression. To estimate the demand for money, two-equation error-correction models are constructed, which contain the short-run dynamics and the long-run economic equilibrium. It is found that a stable money demand exists for all monetary aggregates. The long-run equilibrium of M1, after accounting for a structural break in 1979, can be characterised as a classical type of money demand, with no interest rate effects and an elasticity of one for real GDP. In the case of M2 and M3, we find a unit coefficient on income and a significantly negative influence of a long-term interest rate. The statistical properties of the estimated short-run money demand equations – considering in-sample and out-of-sample tests – are generally very good. First version received: October 1996/Final version received: April 2000     

A system of equations model of UK tourism demand in neighbouring countries

This paper uses a system of equations model to examine tourism demand during periods of destination country transition and integration into the wider international community. The Almost Ideal Demand System model is applied to the UK demand for tourism in the neighbouring destinations, France, Spain and Portugal. Spain and Portugal are interesting cases as, during the period under consideration, they experienced a process of transition from economies with characteristics typical of developing countries, only entering the World Bank's industrialized countries classification in the 1980s. The paper examines the evolution of tourism demand during these countries' transition from ‘developing’ to ‘developed’ status. Consideration of France as a neighbouring destination also allows the behaviour of tourism demand to be compared between relatively rich and poor countries. The results show the extent to which the cross-country behaviour of demand becomes more or less similar over time with respect to changes in expenditure and effective prices. The expenditure elasticities are greater for Spain than France during the initial period, indicating that tourism can assist countries to ‘catch-up’ with their richer neighbours. However, this outcome is not always the case and may not persist, as Portugal had a low initial expenditure elasticity and Spain's relatively high expenditure elasticity decreased over time. Destinations' sensitivity to changes in their own and competitors' prices can also change over time, as indicated by the increases in the own- and cross-price elasticities for Spain, compared with the decreases for France and Portugal. The cross-price elasticity estimates indicate substitutability between the immediate neighbours, Portugal and Spain, and France and Spain.     

A linear demand system within a seemingly unrelated time series equations framework

A seemingly unrelated time series equations framework for the linear almost ideal (AID) demand system is considered. The framework is applied to a consumer demand system covering nine non-durable commodities. Within a specification where the static linear AID system is augmented by latent variables representing stochastic trends and seasonality, demand homogeneity is tested; both in each equation and in the system as a whole. Income and own-price elasticities are calculated under homogeneity restrictions. Although the homogeneous model is formally rejected by statistical tests, it performs well with respect to interpretability, parameter stability and forecasting.     

Adaptive habit persistence in a system of demand equations

The LES has desirable properties as a tool to analyze consumer expenditure patterns. It is a system to equations permitting the researcher to deal with expenditure categories. The model is based upon the habit persistence of consumers. This model has its analytical foundation in the theory of consumer behavior, and it provides an excellent fit to the consumption data.Two modifications of the LES were combined and incorporated into the model. Previous studies treated these modifications separately. The modifications allow for systematic changes over time in the status quo expenditures and the allocation proportions.Estimations of the model utilized a generalized least squares iteration procedure. The results were consistent with theoretical considerations and provided estimates of consumer sensitivity to income and price changes in all expenditure categories considered.Clothing and shoes have the highest habit persistence proportion followed by housing and durables of surplus funds were identified. These changes in consumer behavior indicate a growing share of funds being allocated to durables. Food and beverage, clothing and shoes, and transportation have experienced declines in their allocation proportions. No significant change in housing is observed.     

The demand for money in Austria: Is it stable?

Zusammenfassung Die Frage, ob eine theoretisch plausible und im Zeitablauf stabile Geldnachfragefunktion empirisch nachgewiesen werden kann, nimmt einen wichtigen Platz in der aktuellen makroökonomischen Diskussion ein. Dies gilt insbesondere für diejenigen Länder, in denen sich die wirtschaftspolitischen Instanzen für eine Politik der Steuerung der Geldmenge entschieden haben.Doch auch für ein Land wie Österreich, wo aus verschiedenen Gründen andere geldpolitische Zwischenziele gewählt wurden, ist die Frage nach einem stabilen Zusammenhang von monetären Aggregaten und dem realen Sektor der Volkswirtschaft von Bedeutung: Eine Analyse geldpolitischer Vorgänge erlaubt nur dann verläßliche Rückschlüsse auf das nominelle Sozialprodukt, wenn die beobachteten Variablen in einer systematischen Beziehung zueinander stehen. Darüber hinaus verliert eine mögliche wirtschaftspolitische Strategie der Geldmengensteuerung von vornherein an Attraktivität, wenn berechtigte Zweifel an der Stabilität der Nachfrage nach Liquidität bestehen.In dem vorliegenden Beitrag werden Standardspezifikationen der Nachfrage nach Geld in verschiedenen Abgrenzungen geschätzt und auf ihre theoretische Plausibilität hin untersucht. Anschließend werden die geschätzten Geldnachfragefunktionen einer Reihe von Stabilitätstests unterzogen. Es zeigt sich, daß die Geldmenge M2 in der Definition des WIFO die statistischen Tests besonders gut besteht, doch auch die Nachfrage nach M1, vor allem in der Abgrenzung der Nationalbank, durch die gewählte Spezifikation bemerkenswert verläßlich erklärt werden kann.

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The author wishes to thank Peter Sturm for helpful comments. The views expressed are not meant to represent those of the OECD Secretariat or its Member Governments.     

A money demand system for German M3

A small macroeconomic model is constructed starting from a German money demand relation for M3 based on quarterly, seasonally unadjusted data for the period from 1976 to 1996. In contrast to previous studies we build a vector error correction model for M3, GNP, an inflation rate and an interest rate spread variable to represent opportunity costs of holding money. Furthermore, import price inflation is added as an exogenous variable. The model is used to analyze the relation between money growth and inflation by means of an impulse response analysis.We thank Gerd Hansen for soliciting two anonymous referee reports on an earlier version of this article and thereby helping in the editorial process for this volume. We are grateful to him, Timo Teräsvirta, Kirstin Hubrich and the two referees for comments that helped us to improve our paper. Financial support was provided by the DFG, Sonderforschungsbereich 373.     

Aggregated dynamic demand equations for specialistic-outpatient medical care

In this paper a dynamic model is presented which describes the development of the demand for specialistic medical care in The Netherlands, during the period 1960–1972. The “regionally correlated, time-wise auto-regressive” model is consistently estimated from a time-series of cross-sections, using a modified Aitken estimator. The dependent variables are the number of publicly insured patients referred from general care to specialistic care, and the amount of care consumed per patient referred. As independent variables we took demographic factors, the supply of different levels of medical care and the insurance system. The estimation results show a.o. important substitution possibilities between general and specialistic care, and a significant influence of supply and supply-related variables on the demand for specialistic care.     

Estimation of a system of linear dynamic asset demand equations: Computational considerations

The error covariance matrix of a system of linear dynamic asset demand equations is of less than full rank. This property requires that system be modified before estimation. We show that a knowledge of the structure of the asset equations can be the basis for a favourable reduction in the size of the problems of estimation and inference. It is possible to obtain computational savings while retaining all the properties of the original system.     

A cointegrated VECM demand system for meat in Italy

This article applies cointegration techniques to estimate a monthly demand system for meat in Italy. In contrast to existing studies where Engle and Granger's two step procedure and Triangular Vector Error Correction Model (TVECM) representations are usually exploited, it applies a cointegrated Vector Error Correction Model (VECM) where also prices and expenditure enter endogenously the system and the cointegration rank is not assumed to be known a priori but subject to inference. It highlights some of the advantages of using the VECM compared to the TVECM, including the possibility of testing the cointegration rank of the system and the (weak and strong) exogeneity of prices and expenditure within a well-specified statistical model. This may lead to remarkable improvements in the efficiency of parameters system estimates.     

A money demand system for euro area M3

In order to assess the importance of monetary and financial developments for key macroeconomic variables in the euro area a money demand system for M3 is estimated adopting a structural cointegrating VAR approach. While maintaining a good statistical representation of the data, long-run relationships are based on economic theory. By using generalized response profiles the dynamics of the money demand system is investigated without any further identifying assumptions. Error bounds of the profiles are derived using bootstrap simulations.     

A trigonometric flexible consumer demand system

Abstract.  This paper proposes the first ever empirical specification of a trigonometric demand system. The new model is potentially useful because of some attractive features. It is flexible, amenable to exact aggregation over consumers, possessed of trigonometric Engel curves, which can oscillate, and able to have an unusually large regular region. With comparisons between the new model and two other popular models, an illustration is given for Japanese demand for non‐durables and services. The new model shows relatively gentle Engel curves with an inflection point on each of them, which seem reasonable, given that aggregate expenditure is used in parameter estimation. JEL classification: C51, D12     

The influence of the personal income distribution on private demand in Austria

Zusammenfassung In der vorliegenden Studie wird ein Modell entwickelt, das Auswirkungen von Umverteilungen der persönlichen Einkommen auf den privaten Konsum und die gesamtwirtschaftliche Nachfrage abbilden kann. Effekte auf die Angebotsseite können von solchen Modellen naturgemëß nicht erfaßt werden, woraus aber nicht auf die Geringschätzung dieser Effekte geschlossen werden soll und kann.Die Ergebnisse der Studie sind als eine erste Annäherung an diese wirtschaftspolitisch interessante Frage zu werten, da das vorhandene Datenmaterial keine exakte Quantifizierung zuläßt. Es läßt sich daher lediglich folgern, daß mit Hilfe von Umverteilungen der persönlichen Einkommen die Gesamtnachfrage in Österreich zumindest kurzfristig erhöht werden kann. Deutliche Auswirkungen sind jedoch nur bei relativ starken Eingriffen in die Verteilung zu erwarten — ein Ergebnis, das für hochentwickelte Länder allgemein gültig sein dürfte, da in diesen Ländern die Verteilung egalitärer als in wenig entwickelten ist.     

The matrix approach to evaluating demand equations

This study explores a new data set that contains information both on inputs and outputs for a sample of Portuguese secondary schools. An FDH reference technology is used to determine radial technical efficiency scores and slacks. Although it is known that there is no reason to assume convexity in the study of education efficiency frontiers, this is the first study ever to use FDH at the school level, effectively relaxing the convexity assumption. A two–stage approach is used, whereby the significant environmental variables that explain FDH efficiency scores and slacks are identified. For the purpose of statistical inference, the first application of the bootstrapping algorithms suggested by Simar and Wilson (2003 Simar, L and Wilson, PW. 2000. A general methodology for bootstrapping in nonparametric frontier models. Journal of Applied Statistics, 27: 779–802.  ) is conducted. The study concludes that the unemployment rate, access to health care services, adult education and living infrastructures are determinants of school efficiency. The differences between the coast and the interior of Portugal seem to be more relevant, as far as school efficiency is concerned, than whether or not the school belongs to one of the major coast metropolitan areas.     

Alcohol content and demand for alcoholic beverages: A system approach

This paper examines how alcohol content affects the consumption of alcoholic beverages in Finland. Three different quality hypotheses are studied and compared: Fisher and Shell, Theil, and an additive one. The comparison of the hypotheses is based on quality elasticities implied by the hypotheses. The results show that, under all hypotheses, alcohol content positively affects the demand for alcoholic beverages, and this effect depends negatively on income. The results of the comparison of the hypotheses show that the additive fits the data best. However, the other hypotheses are almost as good: Fisher and Shell's hypothesis better than Theil's.I would like to thank K. Koskela, A. Nyberg, M. Salo, M. Stenius, and I. Suoniemi for their useful comments and suggestions. The author bears sole responsibility for any remaining errors.     

A simple and efficient estimation method for a non-linear demand system

A least-squares-type estimation method appears to be about as efficient as maximum likelihood with a known contemporaneous covariance matrix.     

Testing for negativity in a demand system: A Bayesian approach

The paper introduces Bayesian inference into a demand model. This allows us to test for the negativity condition of the substitution matrix which is difficult to handle directly in the traditional approach. To illustrate the Bayesian inference procedures, we estimate the Rotterdam model and test the demand properties using Japanese data. The empirical results show the importance of specifically considering negativity in demand analysis. First version received: September 1997/final version received: February 1998     

A financial market stress indicator for Austria

This paper develops a financial market stress indicator based on monthly data reflecting the functioning and stability of Austria’s financial system. We aggregate individual time series in a composite indicator using principle component analysis and identify episodes of heightened financial stress since 2000. We highlight the quantitative importance of macrofinancial linkages by modeling the co-movement of the indicator and industrial production. The estimates from two nonlinear models reveal the presence of threshold effects in the transmission of financial market stress to economic activity in Austria.