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Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques

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  • Ansgar Belke
  • Robert Czudaj

Abstract

In this paper we present an empirically stable euro area money demand model. Using a sample period until 2009:2 shows that the current financial and economic crisis that started in 2007 does not appear to have any noticeable impact on the stability of the euro area money demand function. We also compare single equation methods like the ARDL approach, FMOLS, CCR and, DOLS with the commonly used cointegrated Johansen VAR framework and show that the former are under certain circumstances more appropriate than the latter. What is more, they deliver results that are more in line with the economic theory. Hence, FM-OLS, CCR and, DOLS are useful in estimating standard money demand as well, although they have only been rarely applied for this purpose in previous studies.

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Article provided by Duncker & Humblot, Berlin in its journal Applied Economics Quarterly.

Volume (Year): 56 (2010)
Issue (Month): 4 ()
Pages: 285-315

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Handle: RePEc:aeq:aeqaeq:v56_y2010_i4_q4_p285-315

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Keywords: ARDL model; cointegration; euro area; financial crisis; money demand;

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Cited by:
  1. Otmar Issing, 2012. "Central Banks - Paradise Lost," IMES Discussion Paper Series 12-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
  2. Ansgar Belke, 2010. "Die Auswirkungen der Geldmenge und des Kreditvolumens auf die Immobilienpreise – Ein ARDL-Ansatz für Deutschland," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(2), pages 138-162.
  3. Adnan Haider & Asad Jan & Kalim Hyder, 2013. "On the (Ir)Relevance of Monetary Aggregate Targeting in Pakistan: An Eclectic View," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(2), pages 65-119, July-Dec.
  4. Issing, Otmar, 2012. "Central banks: Paradise lost," CFS Working Paper Series 2012/06, Center for Financial Studies (CFS).
  5. Czudaj, Robert, 2011. "P-star in times of crisis - Forecasting inflation for the euro area," Economic Systems, Elsevier, vol. 35(3), pages 390-407, September.

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