Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques

45 Pages Posted: 20 Apr 2010 Last revised: 13 Jul 2010

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Robert Czudaj

University of Duisburg-Essen

Date Written: March 1, 2010

Abstract

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.

Keywords: ARDL Model, Cointegration, Euro Area, Financial Crisis, Money Demand

JEL Classification: C12, C22, C32, E41, E43, E58

Suggested Citation

Belke, Ansgar Hubertus and Czudaj, Robert, Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques (March 1, 2010). Ruhr Economic Paper No. 171; DIW Berlin Discussion Paper No. 982. Available at SSRN: https://ssrn.com/abstract=1593025 or http://dx.doi.org/10.2139/ssrn.1593025

Ansgar Hubertus Belke (Contact Author)

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Robert Czudaj

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany
(0049) 201 183-3516 (Phone)
(0049) 201 183-3995 (Fax)

HOME PAGE: http://www.oek.wiwi.uni-due.de/en/team/robert-czudaj/

Paper statistics

Downloads
83
Rank
246,802
Abstract Views
478