Comparing Forecasts From Fixed and Variable Coefficient Models : The Case of Money Demand

In this paper we introduce a class of tentatively plausible, fixed-coefficient models of money demand and evaluate their forecast performance. When these models are re-estimated allowing all coefficients to vary over time, the forecasting performance improves dramatically. Aside from offering insights about improved methods of analyzing time series data, the most promising direct use for point estimates derived from time-varying coefficients is as an aid in calibrating proposed models of the kinddiscussed here