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Monetary transmission and controllability of money in Europe: a structural vector error correction approach

  • P.J.G. Vlaar
  • H. Schuberth

In this paper, a structural vector error correction model (S-VECM) is estimated to investigate three essential prerequisites for a successful monetary targeting strategy: stability, controllability and predictability. First, multivariate cointegration techniques are used to identify two cointegration relations, that are identified as a long run money demand function and the Fisher effect for the long-term interest rate. Identification of the structural model is achieved by imposing contemporaneous and long-term restrictions. It is found that an interest rate shock hardly affects the nominal money stock, whereas the effects on excess money holdings and inflation are negative, but not significant.

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Paper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 544.

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Date of creation: 1998
Date of revision:
Handle: RePEc:dnb:wormem:544
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  1. Lutz Kilian, 1998. "Confidence intervals for impulse responses under departures from normality," Econometric Reviews, Taylor & Francis Journals, vol. 17(1), pages 1-29.
  2. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May.
  4. P.J.G. Vlaar, 1998. "On the asymptotic distribution of impulse response functions with long run restrictions," WO Research Memoranda (discontinued) 539, Netherlands Central Bank, Research Department.
  5. Blanchard, Olivier Jean, 1989. "A Traditional Interpretation of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 79(5), pages 1146-64, December.
  6. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January.
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