This paper analyzes the recently documented instability of money demand in theeuro area in the framework of a Markov switching trend model. First, we consider astandard flexible price model with stable money demand, rational expectations, andan exogenous income-money ratio which follows a Markov...

We consider a time series model with autoregressive conditional heteroscedasticity that is subject to changes in regime. The regimes evolve according to a multistate latent Markov switching process with unknown transition probabilities, and it is the constant in the variance process of the...