Issues in Money Demand

This article establishes a co‐integration analysis for the euro area (sample period: 1983–2000), identifying three co‐integrating vectors: one which can be labelled money demand (in which real M3 money balances are related to output, with unit elasticity, and the long rate of interest); another pertaining to the spread between the short and long rate of interest; and a third which is an output (IS) relationship in which output is related to the real rate of interest. Currency substitution terms affect the adjustment of real money balances though they do not enter the co‐integration space. We use the aggregation procedure for historical Euroland data advocated by Beyer, Doornik and Hendry for application to aggregation of money, GDP and prices when exchange rates were varying. We make use of the German short‐ and long‐term interest rates as benchmarks for own rate and opportunity cost variables

Broad money · Currency · Demand deposit · Demand for money · Econometrics · Economics · Exchange rate · Interest rate · Monetary economics · Monetary policy · Sample (material · Unit of account · Economic theories and models · Global Financial Crisis and Policies · Monetary Policy and Economic Impact

• M3 money demand and excess liquidity in the euro area

  Open Access•Christian Dreger, Jürgen Wolters•Public Choice•2010

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• Likelihood-Based Inference in Cointegrated Vector Autoregressive Models

  Søren Johansen•Likelihood-based inference in…•1995

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• Maximum Likelihood Estimation and Inference on Cointegration — With Applications to the Demand for Money

  Open Access•Søren Johansen, Katarina Juselius•Oxford Bulletin of Economics and…•1990

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• Constructing Historical Euro‐zone Data

  Open Access•Andreas Beyer, Jurgen A Doornik et al.•The Economic Journal•2001

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• Reconstructing Aggregate Euro‐zone Data

  Open Access•Andreas Beyer, Jurgen A Doornik et al.•JCMS Journal of Common Market…•2000

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