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Money demand stability and currency substitution in six European countries (1980-1992)

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  • Renato Filosa
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    Abstract

    This paper discusses the main potential sources of instability of money demand in Europe originating from institutional changes in the financial system and currency substitution. Money demand equations might appear unstable if the dynamic specifications are too rigid. This can largely be overcome by using error-correction models. Once this model is applied, money demand in the countries reviewed is reasonably stable and economically well behaved. Estimations show that currency substitution is an important feature of financial behaviour in Europe. It supports the proposition that an EC-wide money stock would possess stability properties superior to individual countries' money demand.

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    Bibliographic Info

    Paper provided by Bank for International Settlements in its series BIS Working Papers with number 30.

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    Length: 62 pages
    Date of creation: Nov 1995
    Date of revision:
    Handle: RePEc:bis:biswps:30

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    1. Rose, Andrew K & Svensson, Lars E O, 1993. "European Exchange Rate Credibility Before the Fall," CEPR Discussion Papers 852, C.E.P.R. Discussion Papers.
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    4. David F. Hendry & Neil R. Ericsson, 1990. "Modeling the demand for narrow money in the United Kingdom and the United States," International Finance Discussion Papers 383, Board of Governors of the Federal Reserve System (U.S.).
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    6. Angelini, P. & Hendry, D.F. & Rinaldi, R., 1993. "An Econometric Analysis of Money Demand in Italy," Papers 219, Banca Italia - Servizio di Studi.
    7. Angeloni, Ignazio & Cottarelli, Carlo & Levy, Aviram, 1994. "Cross-border deposits, aggregation, and money demand in the transition to EMU," Journal of Policy Modeling, Elsevier, vol. 16(1), pages 27-54, February.
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    12. Muscatelli, Vito Antonio & Papi, Luca, 1990. "Cointegration, Financial Innovation and Modelling the Demand for Money in Italy," The Manchester School of Economic & Social Studies, University of Manchester, vol. 58(3), pages 242-59, September.
    13. Jeroen J.M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992. "The power of cointegration tests," International Finance Discussion Papers 431, Board of Governors of the Federal Reserve System (U.S.).
    14. Mizen, Paul & Pentecost, Eric J, 1994. "Evaluating the Empirical Evidence for Currency Substitution: A Case Study of the Demand for Sterling in Europe," Economic Journal, Royal Economic Society, vol. 104(426), pages 1057-69, September.
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    16. James G. MacKinnon, 2010. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
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    22. Stefan Gerlach, 1994. "German unification and the demand for German M3," BIS Working Papers 21, Bank for International Settlements.
    23. James Boughton, 1992. "International comparisons of money demand," Open Economies Review, Springer, vol. 3(3), pages 323-343, October.
    24. Philippe Jeanfils, 1994. "Agrégats monétaires, cointégration et stabilité: le cas belge," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 142, pages 153-201.
    25. Luca PAPI & Carlo MONTICELLI, 1995. "EU-Wide money demand: An assessment of competing approaches," Working Papers 63, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    26. George S. Tavlas & James M. Boughton, 1991. "What Have We Learned About Estimating the Demand for Money? a Multicountry Evaluation of Some New Approaches," IMF Working Papers 91/16, International Monetary Fund.
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    Cited by:
    1. Sahar Bahmani & Ali Kutan, 2010. "How stable is the demand for money in emerging economies?," Applied Economics, Taylor & Francis Journals, vol. 42(26), pages 3307-3318.
    2. Javier Gómez P., 1998. "La Demanda Por Dinero En Colombia," BORRADORES DE ECONOMIA 002969, BANCO DE LA REPÚBLICA.

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