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Is Euro Area Money Demand (Still) Stable? – Cointegrated VAR versus Single Equation Techniques

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  • Ansgar Belke

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  • Robert Czudaj

Abstract

In this paper we present an empirically stable euro area money demand model. Using a sample period until 2009:2 shows that the current fi nancial and economic crisis that started in 2007 does not appear to have any noticeable impact on the stability of the euro area money demand function. We also compare single equation methods like the ARDL approach, FM-OLS, CCR and DOLS with the commonly used cointegrated Johansen VAR framework and show that the former are under certain circumstances more appropriate than the latter. What is more, they deliver results that are more in line with the economic theory. Hence, FMOLS, CCR and DOLS are useful in estimating standard money demand as well, although they have only been rarely applied for this purpose in previous studies.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0171.

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Length: 42 pages
Date of creation: Mar 2010
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Handle: RePEc:rwi:repape:0171

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Keywords: ARDL model; cointegration; euro area; fi nancial crisis; money demand;

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Cited by:
  1. Belke, Ansgar, 2010. "Die Auswirkungen der Geldmenge und des Kreditvolumens auf die Immobilienpreise: Ein ARDL-Ansatz für Deutschland," IBES Diskussionsbeiträge 183, University of Duisburg-Essen, Faculty for Economics and Business Administration.
  2. Adnan Haider & Asad Jan & Kalim Hyder, 2013. "On the (Ir)Relevance of Monetary Aggregate Targeting in Pakistan: An Eclectic View," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(2), pages 65-119, July-Dec.
  3. Issing, Otmar, 2012. "Central banks: Paradise lost," CFS Working Paper Series 2012/06, Center for Financial Studies (CFS).
  4. Czudaj, Robert, 2011. "P-star in times of crisis - Forecasting inflation for the euro area," Economic Systems, Elsevier, vol. 35(3), pages 390-407, September.
  5. Otmar Issing, 2012. "Central Banks - Paradise Lost," IMES Discussion Paper Series 12-E-10, Institute for Monetary and Economic Studies, Bank of Japan.

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