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Is the Demand for Euro Area M3 Stable?

64 Pages Posted: 26 Jan 2004  

Annick Bruggeman

National Bank of Belgium

Paola Donati

European Central Bank

Anders Warne

Stockholm University (IIES)

Date Written: September 2003


This paper re-examines two data issues concerning euro area money demand: aggregation of national data and measurement of the own rate. The main purpose is to study if euro area money demand is subject to parameter non-constancies using formal tests rather than informal diagnostics. As a complement to inference based on asymptotics we perform small-scale bootstraps. The empirical evidence supports the existence of a stable long-run relationship between money and output and that the cointegration space is constant over time. However, the interest rate semi-elasticities of money demand are imprecisely estimated. Conditional on the cointegration relations the remaining parameters of the system appear to be constant. We also examine the relevance of stock prices for money demand and find that our measure does not matter for the long-run relations, but may be useful in forecasting exercises. Finally, the conclusions are robust for the aggregation method and the choice of sample.

Keywords: Aggregation, Bootstrap, Money Demand, Own Rate of Money, Parameter Constancy

JEL Classification: C22, C32, E41

Suggested Citation

Bruggeman, Annick and Donati, Paola and Warne, Anders, Is the Demand for Euro Area M3 Stable? (September 2003). ECB Working Paper No. 255. Available at SSRN:

Annick Bruggeman (Contact Author)

National Bank of Belgium ( email )

Brussels, B-1000

Paola Donati

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Anders Warne

Stockholm University (IIES) ( email )

Stockholm, SE-10691

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