Stability of Money Demand in Switzerland : A Comparison of the M2 and M3 Cases

Long-run parameters of money demand functions for Switzerland's M2 and M3 aggregate are estimated and their stability investigated. For both aggregates a single stable cointegrating vector is found. Around these long-run relationships a single-equation model for (1-L)m2 and a single-equation model for (1-L)cpi is built respectively for M2 and M3, and both estimated models are found to be stable. Testing forecast performance, the (1-L)cpi model seems to be superior to the (1-L)m2 model, providing some positive signs that the M3 model is stable in the sense that it does not suffer from a structural break during the period of estimation