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The (in)stability of money demand in the euro area: lessons from a cross-country analysis

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  • Dieter Nautz

    ()

  • Ulrike Rondorf

Abstract

The instability of standard money demand functions has undermined the role of monetary aggregates for monetary policy analysis in the euro area. This paper uses country-specific monetary aggregates to shed more light on the economics behind the instability of euro area money demand. Our results obtained from panel estimation indicate that the observed instability of standard money demand functions could be explained by omitted variables like e.g. technological progress that are important for money demand but constant across member countries.

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Bibliographic Info

Article provided by Springer in its journal Empirica.

Volume (Year): 38 (2011)
Issue (Month): 4 (November)
Pages: 539-553

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Handle: RePEc:kap:empiri:v:38:y:2011:i:4:p:539-553

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Web page: http://www.springerlink.com/link.asp?id=100261

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Keywords: Money demand; Cross-country analysis; Panel error correction model; Euro area; E41; E51; E52;

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  1. Westerlund, Joakim, 2005. "New Simple Tests for Panel Cointegration," Working Papers 2005:8, Lund University, Department of Economics.
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  7. Carstensen, Kai, 2006. "Stock market downswing and the stability of European monetary union money demand," Munich Reprints in Economics 19940, University of Munich, Department of Economics.
  8. Wolters, Jürgen & Teräsvirta, Timo & Lütkepohl, Helmut, 1996. "Modelling the Demand for M3 in the unified Germany," Working Paper Series in Economics and Finance 113, Stockholm School of Economics.
  9. Michael Funke, 2001. "Money Demand in Euroland," Quantitative Macroeconomics Working Papers 20112, Hamburg University, Department of Economics.
  10. Christian Dreger & Jürgen Wolters, 2008. "Money Velocity and Asset Prices in the Euro Area," Discussion Papers of DIW Berlin 813, DIW Berlin, German Institute for Economic Research.
  11. Gerlach, Stefan & Svensson, Lars E. O., 2003. "Money and inflation in the euro area: A case for monetary indicators?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1649-1672, November.
  12. Ivo Arnold, 1994. "The myth of a stable European money demand," Open Economies Review, Springer, vol. 5(3), pages 249-259, July.
  13. Setzer, Ralph & Wolff, Guntram B., 2009. "Money demand in the euro area: new insights from disaggregated data," MPRA Paper 17483, University Library of Munich, Germany.
  14. Laurence Boone & Paul Noord, 2008. "Wealth effects on money demand in the euro area," Empirical Economics, Springer, vol. 34(3), pages 525-536, June.
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Cited by:
  1. Setzer, Ralph & Wolff, Guntram B., 2009. "Money demand in the euro area: new insights from disaggregated data," MPRA Paper 17483, University Library of Munich, Germany.
  2. Clemens Kool & Erik de Regt & Tom van Veen, 2013. "Money Overhang, Credit Overhang and Financial Imbalances in the Euro Area," CESifo Working Paper Series 4476, CESifo Group Munich.
  3. Lee, Chien Chiang & Chang, Chun Ping, 2012. "The Demand for Money in China: A Reassessment Using the Bounds Testing Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 74-94, March.
  4. Frauke Dobnik, 2011. "OLong-run Money Demand in OECD Countries – Cross-Member Cointegration," Ruhr Economic Papers 0237, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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