Estimating A European Demand For Money

European Monetary Union will come into existence in 1999. This raises questions related to the monetary policy targets that will be adopted by the European Central Bank (ECB). For both likely candidates, targeting a money aggregate or an inflation target, the existence of a stable money demand funct...

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Bibliographic Details
Published in:Scottish journal of political economy 1999-08, Vol.46 (3), p.221-244
Main Author: Hayo, Bernd
Format: Article
Language:English
Subjects:
Central banks
Cointegration analysis
Demand
Demand for money
Economic models
Economic planning
Economic theory
Europe
European Central Bank
European Monetary Union
Inflation controls
Monetary economics
Monetary models
Monetary policy
Studies
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Summary:European Monetary Union will come into existence in 1999. This raises questions related to the monetary policy targets that will be adopted by the European Central Bank (ECB). For both likely candidates, targeting a money aggregate or an inflation target, the existence of a stable money demand function at a European level is important. In this paper estimates of such a European money demand for narrow and broad money for the actual 11 EMU countries based on quarterly aggregate data from 1964 to 1994 are presented. It is argued that statistically satisfactory and economically interpretable functions can be found. Moreover, the estimated models appear to be stable over a period of 20 quarters. This raises the hopes that the ECB will face a stable money demand and be able—at least for a certain time—to use past aggregate data for policy purposes.
ISSN:0036-9292
1467-9485
DOI:10.1111/1467-9485.00130