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Economic and Monetary Integration and the Aggregate Demand for Money in the EMS

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  • Jeroen J. M. Kremers

    (International Monetary Fund)

  • Timothy D. Lane

    (International Monetary Fund)

Abstract

Aggregate demand for M1 in the countries participating in the exchange rate mechanism (ERM) of the European Monetary System is shown to be a stable function of ERM-wide income, inflation, interest rates, and the ECU-dollar exchange rate. Particularly noteworthy is the rapid dynamic adjustment, in contrast to the implausibly slow adjustment implied by most single-country estimates. These results, if robust, suggest that, even at the present stage of economic and monetary integration, a European central bank might be able to implement monetary control more effectively than the individual national central banks.

Suggested Citation

  • 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.
    • Handle: RePEc:pal:imfstp:v:37:y:1990:i:4:p:777-805
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