ON ASYMMETRIC COSTS OF DISEQUILIBRIUM AND FORECASTING MONEY DEMAND

The assumption of asymmetric costs of disequilibrium in money demand l eads to data partitioning into situations of binding money demand and surplus money balances. It is found that joint fitting of equations to this data division (for 1952:i-1973:iv) leads to reduction in SSE and to forecasts that are superior to those obtained from a corresponding single equation. The primary reason for the improvement is probably t he flexibility allowed by the allocation of observations between situa tions of positive and negative excess demand.