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The demand for M3 in the euro area

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Author Info
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)

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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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File URL: http://qed.econ.queensu.ca:80/jae/2001-v16.6/
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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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