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The functional form of the demand for euro area M1 Author info | Abstract | Publisher info | Download info | Related research | Statistics Livio Stracca () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany. )
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A remarkable development seen in recent years is the pronounced decline in euro area M1 velocity vis-a-vis a moderate decline in short-term interest rates, which represent the most natural opportunity cost for M1. This paper endeavous to estimate a demand function for euro area M1, in particular by investigating its functional form. While the double log function is found to be very close to the true "deep" functional form of M1 demand in the euro area for most of the sample period, consistent with the findings of Chadha, Haldane and Janssen (1998) for the United Kingdom and of Lucas (2000) for the United States, there is also evidence of an increased interest rate elasticity in M1 demand in the most recent years, presumably owing to the transition to the new policy environment prevailing from the start of Stage Three of EMU and the associated decline in nominal short-term interest rates. JEL Classification: E41; E52.
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Paper provided by European Central Bank in its series Working Paper Series with number
051.
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Length: 41 pages
Date of creation: Mar 2001Date of revision:
Handle: RePEc:ecb:ecbwps:20010051Contact details of provider: Postal: Postfach 16 03 19, Frankfurt am Main, Germany Phone: +49 69 1344 0 Fax: +49 69 1344 6000 Web page: http://www.ecb.europa.eu/home/html/index.en.html More information through EDIRC
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Keywords: M1 ; money demand ; interest rate elasticity ; cointegration ; Kalman filter. ; Other versions of this item:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Gunter Coenen & Volker Wieland, 2000.
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