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The Demand for M3 in the Euro Area

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  • Gunter Coenen

    (European Central Bank)

  • Juan Luis Vega

    (European Central Bank)

Abstract

In this paper, an empirically stable money demand model for M3 in the euro area is constructed. Starting with a multivariate system, three cointegrating relationships with economic content are found: (i) the spread between the long-term and the short-term nominal interest rates, (ii) the long-term real interest rate, and (iii) a long-run demand for broad money M3. There is evidence that the determinants of M3 money demand are weakly exogenous with respect to the long-run parameters. Hence, following a general-to-specific modelling approach, a parsimonious conditional error-correction model for M3 money demand is derived which can be interpreted economically. For the conditional model, long-run and short-run parameter stability is extensively tested and not rejected. Copyright © 2001 John Wiley & Sons, Ltd.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0976.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0976

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