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Long run money demand in the EU: Evidence for area-wide aggregates

  • Gabriel Fagan

    (European Monetary Institute, MESD Stage Three Division, Postfach 10 20 31, D-60020 Frankfurt am Main, Germany)

  • JÊrÆme Henry

    (European Monetary Institute, MESD Stage Three Division, Postfach 10 20 31, D-60020 Frankfurt am Main, Germany)

Long-run properties of EU-wide money aggregates are analysed. For each of the three aggregates considered - Currency, M1 and M3H - it is possible to obtain cointegrating relationships with GDP and interest rates (long or short term market interest rates). Results are not improved when traditional aggregates, obtained by aggregating existing national aggregates, are extended by the inclusion of various measures of Cross-Border Holdings. Specific attention is also paid to aggregation issues and the relative performance of area-wide and national equations. The results show that aggregation bias is not a major problem and that the relatively good area-wide performance is largely a consequence of a statistical averaging effect.

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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 23 (1998)
Issue (Month): 3 ()
Pages: 483-506

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Handle: RePEc:spr:empeco:v:23:y:1998:i:3:p:483-506
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