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Is Euro Area Money Demand (Still) Stable?: Cointegrated VAR versus Single Equation Techniques

  • Ansgar Belke
  • Robert Czudaj

In this paper we present an empirically stable euro area money demand model. Using a sample period until 2009:2 shows that the current financial and economic crisis that started in 2007 does not appear to have any noticeable impact on the stability of the euro area money demand function. We also compare single equation methods like the ARDL approach, FM-OLS, CCR and DOLS with the commonly used cointegrated Johansen VAR framework and show that the former are under certain circumstances more appropriate than the latter. What is more, they deliver results that are more in line with the economic theory. Hence, FMOLS, CCR and DOLS are useful in estimating standard money demand as well, although they have only been rarely applied for this purpose in previous studies.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.353224.de/dp982.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 982.

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Length: 40 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp982
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  2. Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2004. "Money Demand in theEuroArea: Do National Differences Matter?," Macroeconomics 0404019, EconWPA, revised 24 Apr 2004.
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  16. Wesche, Katrin, 1995. "The Stability of European Money Demand: An Investigation of M3H," Discussion Paper Serie B 337, University of Bonn, Germany.
  17. Warne, Anders & Bruggeman, Annick & Donati, Paola, 2003. "Is the demand for euro area M3 stable?," Working Paper Series 0255, European Central Bank.
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