Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques
Ansgar Hubertus Belke
University of Duisburg-Essen - Department of Economics; Institute for the Study of Labor (IZA)
University of Duisburg-Essen
March 1, 2010
Ruhr Economic Paper No. 171
DIW Berlin Discussion Paper No. 982
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.
Number of Pages in PDF File: 45
Keywords: ARDL Model, Cointegration, Euro Area, Financial Crisis, Money Demand
JEL Classification: C12, C22, C32, E41, E43, E58working papers series
Date posted: April 20, 2010 ; Last revised: July 13, 2010
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.344 seconds