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Currency substitution and money demand in Euroland

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  • Miguel Lebre de Freitas

    (Universidade de Aveiro and NIPE)

Abstract

This papers tests the stability of the demand for money in the euro area in the context of an open economy. A sample consisting of quarterly data covering the 1982:2-1999:3 period is considered. The main finding is that the US long term rate of interest plays a significant role in the European money demand relationship. This result holds for different combinations of variables forming the vector auto-regressive system and suggests that currency substitution vis-à-vis the US dollar may be an important factor influencing the ECB monetary policy.

Suggested Citation

  • Miguel Lebre de Freitas, 2003. "Currency substitution and money demand in Euroland," NIPE Working Papers 11/2003, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:11/2003
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    1. repec:zbw:bofitp:2007_003 is not listed on IDEAS
    2. Harrison, Barry & Vymyatnina, Yulia, 2007. "Currency substitution in a de-dollarizing economy: the case of Russia," BOFIT Discussion Papers 3/2007, Bank of Finland Institute for Emerging Economies (BOFIT).
    3. repec:cto:journl:v:24:y:2004:i:1-2:p:27-40 is not listed on IDEAS
    4. Harrison, Barry & Vymyatnina, Yulia, 2007. "Currency substitution in a de-dollarizing economy : the case of Russia," BOFIT Discussion Papers 3/2007, Bank of Finland, Institute for Economies in Transition.
    5. Miguel Lebre de Freitas & Francisco José Veiga, 2006. "Currency substitution, portfolio diversification, and money demand," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 719-743, August.
    6. Miguel Lebre de Freitas, 2014. "On inflation and money demand in a portfolio model with shopping costs," NIPE Working Papers 13/2014, NIPE - Universidade do Minho.
    7. Lebre DE Freitas, Miguel, 2022. "International currency substitution and the demand for money in the euro area," Economic Modelling, Elsevier, vol. 117(C).
    8. Leland B. Yeager, 2004. "The Euro Facing Other Moneys," Cato Journal, Cato Journal, Cato Institute, vol. 24(1-2), pages 27-40, Spring/Su.

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    More about this item

    Keywords

    EMU; Money Demand; International Currencies; Currency Substitution.;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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