The Demand for Money in Austria

31 Pages Posted: 23 Mar 1999

See all articles by Bernd Hayo

Bernd Hayo

University of Marburg - School of Business & Economics

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Abstract

In this paper, the demand for real money M1, M2 and M3 is estimated for Austria. The modelling takes place within the framework of a small vector autoregression. To estimate the demand for money, two-equation error-correction models are constructed, which contain the short-run dynamics and the long-run economic equilibrium. It is found that a stable money demand exists for all monetary aggregates. The long-run equilibrium of M1, after accounting for a structural break in 1979, can be characterized as a classical type of money demand, with no interest rate effects and a unity elasticity of real GDP. In the case of M2 and M3, we find a unit coefficient on income and a significantly negative influence of an interest rate. The statistical properties of the estimated short-run money demand equations--considering in-sample and out-of-sample (35 observations) tests--are generally very good.

JEL Classification: E41, C32

Suggested Citation

Hayo, Bernd, The Demand for Money in Austria. Available at SSRN: https://ssrn.com/abstract=152229 or http://dx.doi.org/10.2139/ssrn.152229

Bernd Hayo (Contact Author)

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