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Issues in stability of European money demand: Adjustment speed versus error variance

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  • Läufer, Nikolaus K. A.

Abstract

The current discussion about stability of the European money demand function is flawed by a confusion of two different concepts of stability (adjustment speed versus error variance). The meaning and importance of the underlying notions of stability is clarified. It is demonstrated that necessary and sufficient conditions for the two types of stability are mutually independent and empirical issues. The issues are related to a distinction between a currency substitution effect and a portfolio diversification effect. The difference can also be related to the choice between discretionary and rule-oriented monetary policies.

Suggested Citation

  • Läufer, Nikolaus K. A., 1997. "Issues in stability of European money demand: Adjustment speed versus error variance," Discussion Papers, Series II 356, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    • Handle: RePEc:zbw:kondp2:356
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    References listed on IDEAS

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    1. P. Bekx & G. Tullio, 1989. "A note on the European Monetary System, and the determination of the DM-dollar exchange rate," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 123, pages 329-343.
    2. Masson,Paul R. & Taylor,Mark P. (ed.), 1993. "Policy Issues in the Operation of Currency Unions," Cambridge Books, Cambridge University Press, number 9780521434553.
    3. International Monetary Fund, 1990. "Economic and Monetary Integration and the Aggregate Demand for Money in the EMS," IMF Working Papers 1990/023, International Monetary Fund.
    4. Jeroen J. M. Kremers & Timothy D. Lane, 1990. "Economic and Monetary Integration and the Aggregate Demand for Money in the EMS," IMF Staff Papers, Palgrave Macmillan, vol. 37(4), pages 777-805, December.
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    More about this item

    Keywords

    European Money Demand; Stability; Monetary Policy;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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