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The (In)stability of Money Demand in the Euro Area: Lessons from a Cross-Country Analysis

  • Dieter Nautz
  • Ulrike Rondorf

The instability of standard money demand functions has undermined the role of monetary aggregates for monetary policy analysis in the euro area. This paper uses country-specific monetary aggregates to shed more light on the economics behind the instability of euro area money demand. Our results obtained from panel estimation indicate that the observed instability of standard money demand functions could be explained by omitted variables like e.g. technological progress that are important for money demand but constant across member countries.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2010-023.pdf
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2010-023.

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Length: 24 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2010-023
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  1. Ivo Arnold, 1994. "The myth of a stable European money demand," Open Economies Review, Springer, vol. 5(3), pages 249-259, July.
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  11. Carstensen, Kai, 2006. "Stock market downswing and the stability of European monetary union money demand," Munich Reprints in Economics 19940, University of Munich, Department of Economics.
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  13. Driscoll, John C., 2004. "Does bank lending affect output? Evidence from the U.S. states," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 451-471, April.
  14. Christian Dreger & Jürgen Wolters, 2008. "Money Velocity and Asset Prices in the Euro Area," Discussion Papers of DIW Berlin 813, DIW Berlin, German Institute for Economic Research.
  15. David Hendry & Jurgen Doornik, 2000. "Constructing Historical Euro-Zone Data," Economics Series Working Papers 4, University of Oxford, Department of Economics.
  16. Cappiello, Lorenzo & Kadareja, Arjan & Kok, Christoffer & Protopapa, Marco, 2010. "Do bank loans and credit standards have an effect on output? A panel approach for the euro area," Working Paper Series 1150, European Central Bank.
  17. Casey B. Mulligan & Xavier Sala-I-Martin, 1992. "U.S. Money Demand: Surprising Cross-Sectional Estimates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 285-343.
  18. Claus Brand & Nuno Cassola, 2004. "A money demand system for euro area M3," Applied Economics, Taylor & Francis Journals, vol. 36(8), pages 817-838.
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