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The demand for M3 in the euro area

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  • G. Coenen

    (Directorate General Research, European Central Bank, Frankfurt am Main, Germany)

  • J.-L. Vega

    (Directorate General Research, European Central Bank, Frankfurt am Main, Germany)

Abstract

In this paper, an empirically stable money demand model for M3 in the euro area is constructed. Starting with a multivariate system, three cointegrating relationships with economic content are found: (i) the spread between the long-term and the short-term nominal interest rates, (ii) the long-term real interest rate, and (iii) a long-run demand for broad money M3. There is evidence that the determinants of M3 money demand are weakly exogenous with respect to the long-run parameters. Hence, following a general-to-specific modelling approach, a parsimonious conditional error-correction model for M3 money demand is derived which can be interpreted economically. For the conditional model, long-run and short-run parameter stability is extensively tested and not rejected. Copyright © 2001 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 16 (2001)
Issue (Month): 6 ()
Pages: 727-748

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Handle: RePEc:jae:japmet:v:16:y:2001:i:6:p:727-748

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