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European integration and the demand for broad money

  • Carlo Monticelli
  • Marc-Olivier Strauss-Kahn

Co-integration analysis and error-correction modelling show that a stable and predictable aggregate demand for broad money holds for the group of countries participating in the Exchange Rate Mechanism (ERM) of the European Monetary System. This result seems robust to different econometric techniques, samples and methods of conversion of national variables into ecus. Furthermore, ERM-wide equations compare favourably with national equations and with the previous estimates of area-wide equations for narrow money. These findings suggest that an area-wide broad monetary aggregate can play a useful role in the co-ordination of monetary policy at the European level.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 18.

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Length: 38 pages
Date of creation: Apr 1992
Date of revision:
Handle: RePEc:bis:biswps:18
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  3. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
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  10. Muscatelli, Vito Antonio & Papi, Luca, 1990. "Cointegration, Financial Innovation and Modelling the Demand for Money in Italy," The Manchester School of Economic & Social Studies, University of Manchester, vol. 58(3), pages 242-59, September.
  11. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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  13. Banerjee, Anindya, et al, 1986. "Exploring Equilibrium Relationships in Econometrics through Static Models: Some Monte Carlo Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 253-77, August.
  14. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  15. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
  16. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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