Department of Economics, Analytics and Operations Research

Instability and Nonlinearity of Long-Run Money Demand: Econometric Theory and Empirical Analysis (OeNB Project No. 18692)

Instability and Nonlinearity of Long-Run Money Demand: Econometric Theory and Empirical Analysis

Project Leadership

Martin Wagner

Project Staff

Sebastian Veldhuis, Igor Kheifets, Gerhard Laimer, Renata Cheremnykh, Artem Barsukov

Duration

01.07.2022 - 31.12.2025

Funding

Jubiläumsfonds der Oesterreichischen Nationalbank (OeNB)

Many central banks, including the ESCB and the FED, are currently reviewing their strategies. Despite a less prominent role of the monetary pillar due to (i) apparent money demand instability and thus presumably diminished predictive power on the one hand and (ii) a shift towards interest-rate rules centered monetary policy on the other, a detailed understanding of money demand - in particular its determinants, its stability and its functional form - remains important for assessing the transmission of monetary policy, in particular over the medium- to long-run. The project will identify sources of instabilities or nonlinearities of money demand and the determinants of money demand. The empirical analysis will be performed for a large number of countries over long periods, which implies that detailed understanding of the (dis-)similarities of money demand across countries and episodes is gained; providing a sound basis for reassessing the importance of money demand for monetary policy.The project has two intertwined components: Econometric theory development and encompassing empirical application. We tackle the problems plaguing money demand analysis by developing a smooth transition cointegration centered modelling cycle that: (i) allows to identify the relevant variables, (ii) allows to test for instabilities and nonlinearities, (iii) is flexible with respect to the types or shapes of instabilities and/or nonlinearities and (iv) identifies the drivers and shapes of the instabilities and nonlinearities.The developed methods will be used to analyze in great detail long-run money demand for as many countries as possible for as long periods as possible; including a large number of variables potentially relevant for money demand. This will lead to thorough understanding of the similarities and dissimilarities of money demand across countries and periods, including existence, stability and form of long-run money demand relations as well as the relevant variables.The applied research methods correspond to the intertwined components of the project - econometric theory development and empirical application. This means that we employ the following research methods: (i) development of econometric theory, (ii) a careful implementation and performance evaluation of the developed methodology to gauge its usefulness and applicability (as well as the relative performance, where applicable, to competing methods), (iv) careful construction of encompassing data sets, (iv) detailed and thorough applied econometric analysis using our new methodology as well as a battery of existing time-series econometric tools, mostly for preliminary analyses.

Coorperation Partner

Further Information

Supported by funds of Jubiläumsfonds der Oesterreichischen Nationalbank (Austrian Central Bank, Anniversary Fund, project number: 18692)

Contact

Name:: Univ.-Prof. Dipl.-Ing. Dr. Martin Wagner
E-mail:: Martin [dot] Wagner [at] aau [dot] at

Conferences and Talks

Wagner, M. and S. Veldhuis
Estimation and Inference for Cointegrated Systems of Multi-Factor Production Functions: Modelling the Joint Behavior of GDP and Emissions
7th Vienna Workshop on High-Dimensional Time Series in Macroeconomics and Finance
28.05.2026, Vienna, Austria

Wagner M.
Estimation and Inference for Cointegrated Systems of Multi-Factor Production Functions: Modelling the Joint Behavior of GDP and Emissions
Jahrestagung des Ausschusses für Ökonometrie
20.03.2026, Berlin, Germany

Wagner M.
Estimation and Inference for Cointegrated Systems of Multi-Factor Production Functions: Modelling the Joint Behavior of GDP and Emissions
Federal Reserve Bank of Richmond Research Seminar
12.02.2026, Richmond, USA

Wagner M.
Estimation and Inference for Cointegrated Systems of Multi-Factor Production Functions: Modelling the Joint Behavior of GDP and Emissions
Washington University in St. Louis Department of Economics Seminars
03.02.2026, St. Louis, USA

Veldhuis, S. and M. Wagner
Integrated Modified Least Squares Estimation and (Fixed-b) Inference for Systems of Cointegrating Multivariate Polynomial Regressions
5th Italian Workshop of Econometrics and Empirical Economics: “New Directions in Panel Data Econometrics” (IWEEE 2026)
17.01.2026, Ancona, Italy

Veldhuis, S. and M. Wagner
Systems of Multi-Factor Production Functions: Modelling the Joint Behavior of GDP and Emissions
19th International Conference on Computational and Financial Econometrics (CFE 2025)
13.12.2025, London, UK

Wagner M.
IM Estimation and (Fixed-b) Inference for Systems of Cointegrating Multivariate Polynomial Regressions
19th International Conference on Computational and Financial Econometrics (CFE 2025)
13.12.2025, London, UK

Wagner M.
Estimation and Inference for Systems of Multi-Factor Production Functions: Modelling the Joint Behavior of GDP and Emissions
9th Conference on Econometric Models of Climate Change (EMCC 2025)
27.08.2025, Victoria, British Columbia, Canada

Vogelsang T. J. and M. Wagner
Integrated Modified OLS Estimation and Fixed-b Inference for Cointegrating Multivariate Polynomial Regressions
2025 World Congress of the Econometric Society (ESWC 2025)
18.08.2025, Seoul, Korea

Veldhuis S. and M. Wagner
Integrated Modified Least Squares Estimation and (Fixed-b) Inference for (Systems of) Cointegrating Multivariate Polynomial Regressions
11th International Conference on Time Series and Forecasting
17.07.2025, Gran Canaria, Spain

Veldhuis, S. and M. Wagner
A State Space Approach to Time-Varying Cointegration in Vector Error Correction Models: Identifying Instabilities in Long-Run Money Demand
3rd Vienna Workshop on Economic Forecasting 2025
06.06.2025, Vienna, Austria

Vogelsang T. J. and M. Wagner
Integrated Modified OLS Estimation and Fixed-b Inference for Cointegrating Multivariate Polynomial Regressions
3rd Vienna Workshop on Economic Forecasting 2025
06.06.2025, Vienna, Austria

Wagner M. and T. J. Vogelsang
Integrated Modified OLS Estimation and Fixed b Inference for Cointegrating Multivariate Polynomial Regressions
11th Italian Congress of Econometrics and Empirical Economics (ICEEE 2025)
29.05.2025, Palermo, Italy

Wagner M.
Cointegrating Multivariate Polynomial Regression Analysis
Nuffield Econometrics Seminar
09.05.2025, Oxford, UK

Veldhuis, S. and M. Wagner
Integrated Modified OLS Estimation and Fixed-b Inference for (Systems of) Cointegrating Multivariate Polynomial Regressions
Workshop (Five Years of MSc) in Econometrics
05.04.2025, Dortmund, Germany

Veldhuis, S. and M. Wagner
Integrated Modiﬁed Least Squares Estimation and Fixed-b Inference for Systems of Cointegrating Multivariate Polynomial Regressions
XVt Workshop in Time Series Econometrics
03.04.2025, Zaragoza, Spain

Wagner M. and T. J. Vogelsang
Integrated Modified OLS Estimation and Fixed-b Inference for Cointegrating Multivariate Polynomial Regressions
7th Joint Statistical Meeting of the Deutsche Arbeitsgemeinschaft Statistik (DAGStat2025)
27.03.2025, Berlin, Germany

Veldhuis, S. and M. Wagner
Long-Run Money Demand Reconsidered
18th International Conference on Computational and Financial Econometrics (CFE 2024)
15.12.2024, London, UK

Vogelsang T. J. and M. Wagner
Integrated Modified OLS Estimation and Fixed-b Inference for Cointegrating Multivariate Polynomial Regressions
Econometric Society Australasian Meetings (ESAM) 2024
06.12.2024, Melbourne, Australia

Veldhuis, S. and M. Wagner
Integrated Modiﬁed Least Squares Estimation and (Fixed-b) Inference for Systems of Cointegrating Multivariate Polynomial Regressions
BS|EF Research Seminar
14.11.2024, Lljubljana, Slovenia

Wagner, M. and S. Veldhuis
Integrated Modified OLS Estimation and Inference in Systems of I(2) Cointegrating Regressions
6th Vienna Workshop on High-Dimensional Times Series in Macroeconomics and Finance
16.05.2024, Vienna, Austria

Veldhuis, S. and M. Wagner
Integrated Modified OLS Estimation and Inference in I(2) Cointegrating Regressions
17th International Conference on Computational and Financial Econometrics (CFE 2023)
18.12.2023, Berlin, Germany

Veldhuis, S. and M. Wagner
A Fixed-b Perspective on the Phillips-Ouliaris Non-Cointegration Z-Tests
16th International Conference on Computational and Financial Econometrics (CFE 2022)
18.12.2022, London, UK

Veldhuis, S. and M. Wagner
A Fixed-b Cointegration Test for Cointegrating Polynomial Regressions
15th International Conference on Computational and Financial Econometrics (CFE 2021)
19.12.2021, London, UK

Events

Internal Workshop with Prof. Mathias Vetter (Mathematisches Seminar, CAU Kiel)
May 10-12, 2023, Klagenfurt, Austria

Expert Workshop and Public Presentation of the Project Results
May 26-27, 2026, Klagenfurt, Austria
External experts: Dietmar Bauer (Bielefeld University), Manfred Deistler (TU Wien) and Robert M. de Jong (Ohio State University)
University of Klagenfurt: Dmitri Blüschke, Sebastian Veldhuis and Martin Wagner
Programme

Publications and Downloads

Publications

Veldhuis, S. (2026): Essays on Instabilities and Nonlinearities in Long-Run Macroeconomic Relationships. PhD Thesis.

Veldhuis, S. and M. Wagner (2024): Integrated Modified Least Squares Estimation and (Fixed-b) Inference for Systems of Cointegrating Multivariate Polynomial Regressions. IHS Working Paper Series 54.

Vogelsang, T. J. and M. Wagner (2024): Integrated Modified OLS Estimation and Fixed-b Inference for Cointegrating Multivariate Polynomial Regressions. IHS Working Paper Series 53.

Downloads

R Codes for estimation and hypothesis testing in (systems of) linear and nonlinear cointegrating regressions
R Codes for estimating and forecasting (time-varying) reduced rank regression models under restrictions
Replication repository and data files
Archived version (frozen-snapshot of the replication repository)

Essays on Instabilities and Nonlinearities in Long-Run Macroeconomic Relationships
(Appendix A: Data set description of replication repository; Appendix B: Short description of main methods implemented in the R codes and short description of the replication of empirical results)