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Is the demand for Euro area M3 stable?

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Author Info
Annick Bruggeman () (National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.)
Paola Donati () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany.)
Anders Warne () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany.)

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Abstract

This paper re-examines two data issues concerning euro area money demand: aggregation of national data and measurement of the own rate. The main purpose is to study if euro area money demand is subject to parameter non-constancies using formal tests rather than informal diagnostics. As a complement to inference based on asymptotics we perform small-scale bootstraps. The empirical evidence supports the existence of a stable long-run relationship between money and output and that the cointegration space is constant over time. However, the interest rate semi-elasticities of money demand are imprecisely estimated. Conditional on the cointegration relations the remaining parameters of the system appear to be constant. We also examine the relevance of stock prices for money demand and find that our measure does not matter for the long-run relations, but may be useful in forecasting exercises. Finally, the conclusions are robust for the aggregation method and the choice of sample. JEL Classification: C22; C32; E41.

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Paper provided by European Central Bank in its series Working Paper Series with number 255.

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Length: 64 pages
Date of creation: Sep 2003
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Handle: RePEc:ecb:ecbwps:20030255

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Related research
Keywords: Aggregation; bootstrap; money demand; own rate of money; parameter constancy.;

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References listed on IDEAS
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  1. António Afonso & Ludger Schuknecht & Vito Tanzi, 2005. "Public sector efficiency: An international comparison," Public Choice, Springer, vol. 123(3), pages 321-347, June. [Downloadable!] (restricted)
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  2. Fielding, David & Stracca, Livio, 2007. "Myopic loss aversion, disappointment aversion, and the equity premium puzzle," Journal of Economic Behavior & Organization, Elsevier, vol. 64(2), pages 250-268, October. [Downloadable!] (restricted)
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  3. Bernd Schnatz & Chiara Osbat & Rasmus Rueffer, 2003. "The rise of the Yen vis-a-vis the ('Synthetic') Euro: is it supported by economic fundamentals?," Working Paper Series 224, European Central Bank. [Downloadable!]
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  6. Ignazio Angeloni & Gunter Coenen & Frank Smets, 2003. "Persistence, The Transmission Mechanism And Robust Monetary Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(5), pages 527-549, November. [Downloadable!] (restricted)
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  7. Alessandro Calza & Joao Sousa & Marta Manrique Simon, 2003. "Aggregate loans to the euro area private sector," Working Paper Series 202, European Central Bank. [Downloadable!]
  8. Philipp Hartmann & Angela Maddaloni & Simone Manganelli, 2003. "The Euro-area Financial System: Structure, Integration, and Policy Initiatives," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 180-213.
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  9. Inoue, Atsushi & Kilian, Lutz, 2003. "On the Selection of Forecasting Models," CEPR Discussion Papers 3809, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Marcus H. Miller & Olli Castren & Roger Stiegert, 2003. "Growth expectations; capital flows and international risk sharing," Working Paper Series 237, European Central Bank. [Downloadable!]
  11. Andrea Zaghini, 2003. "Trade advantages and specialisation dynamics in acceding countries," Working Paper Series 249, European Central Bank. [Downloadable!]
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