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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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    21. James Boughton, 1992. "International comparisons of money demand," Open Economies Review, Springer, vol. 3(3), pages 323-343, October.
    22. von Hagen, Jurgen, 1993. "Monetary union, money demand, and money supply : A review of the German monetary union," European Economic Review, Elsevier, vol. 37(4), pages 803-827, May.
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    24. 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.
    25. Philippe Jeanfils, 1994. "Agrégats monétaires, cointégration et stabilité: le cas belge," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 142, pages 153-201.
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