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Estimating A European Demand For Money

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  • Bernd Hayo

Abstract

European Monetary Union will come into existence in 1999. This raises questions related to the monetary policy targets that will be adopted by the European Central Bank (ECB). For both likely candidates, targeting a money aggregate or an inflation target, the existence of a stable money demand function at a European level is important. In this paper estimates of such a European money demand for narrow and broad money for the actual 11 EMU countries based on quarterly aggregate data from 1964 to 1994 are presented. It is argued that statistically satisfactory and economically interpretable functions can be found. Moreover, the estimated models appear to be stable over a period of 20 quarters. This raises the hopes that the ECB will face a stable money demand and be able—at least for a certain time—to use past aggregate data for policy purposes.

Suggested Citation

  • Bernd Hayo, 1999. "Estimating A European Demand For Money," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(3), pages 221-244, August.
  • Handle: RePEc:bla:scotjp:v:46:y:1999:i:3:p:221-244
    DOI: 10.1111/1467-9485.00130
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    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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