Testing Non-Nested Specifications of Money Demand for The Small Open Economy of Kuwait | ||||
| The Egyptian Statistical Journal | ||||
| Article 7, Volume 37, Issue 2, December 1993, Page 275-294 | ||||
| Document Type: Original Article | ||||
| DOI: 10.21608/esju.1993.314844 | ||||
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| Author | ||||
| Elsayed M. Elsamadisy | ||||
| Abstract | ||||
| This paper addresses empirically the issues of selecting the appropriate opportunity cost variables in the money demand function in the presence of alternative non-nested hypothesis. Adopting a conventional real partial adjustment hypothesis, the relative performance of two alternative competing specifications for the demand for narrowly defined money with domestic and foreign short-term deposits rates as alternative measures of the opportunity cost of holding money balances is compared utilizing formal significance tests of model specification in the presence of alternative non-nested hypothesis. The tests are carried out with quarterly data from the small open economy of Kuwait over the period 1983-90. The tests unequivocally discriminated in favor of a foreign interest rate specification. A brief discussion of the factors explaining our results is presented. | ||||
| Keywords | ||||
| Alternative Non-Nested Hypothesis; Money Demand Function; Opportunity Cost Variables; Real Partial Adjustment Hypothesis; Significance Tests | ||||
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Statistics Article View: 22 |
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